Market Commentary 3/2/18

It was a packed week of economic commentary beginning with newly appointed Federal Reserve chairman speaking to Congress in his first big public commentary as Fed Governor, and ending with an impromptu announcement by President Trump on steel tariffs (more on this next week).

Chairman Powell’s comments reflected his more conservative posture as he opined on the strong economy, expectations of increasing inflation, and measured rate increases this year and into 2019. He did scare some with his use of the word “overheating” and that had a negative effect on the stock and bond market midweek.

Love him or hate him, President Trump stayed true to his campaign promise to impose tariffs on the steel industry. It is too early to speculate how this protectionist policy will play out long term, but early on both the bond and equity markets traded negatively in response to his impromptu and “details to follow” announcement.

The big economic reading this week was the Fed’s favorite gauge of inflation, the personal consumption expenditure (PCE), was unchanged at 1.500%. This author was disappointed that bonds did not react favorably to this tame inflation reading, but given the “hawkish” comments from Mr. Powell earlier in the week, I was not surprised.

Even with the 10-year Treasury touching a high of 2.94% this week, banks remain ultra-competitive as loan originations on refinances have slowed. This remains a boon for new home buyers, especially those interested in portfolio jumbo products.

We remain cautious and biased towards locking in interest rates as we believe the chances of higher interest rates outweigh any argument for lower interest rates.