Good Jobs Report Moves Interest Rates Higher
Rising bond yields which continue to move higher and they touched above 1.61% after a stronger than expected February jobs report remains a major concern on Wall Street. Tech stocks that have especially benefited from 0% interest rates have gotten taken to the woodshed this week before reserving in late Friday trading. Discounting cash flows at zero percent favor high beta long-duration growth stocks.
As mortgage originators, why do we care, you may ask? The reason is that the stock market is the wealth engine of America and for the everyday person, equity market gains are typically the down payment source for first-time home purchases, along with gift funds from parents, and step-up purchases. These major swings may hurt the spring buying season if the markets plunge lower or become increasingly volatile.
The jobs report was a good one. While there is much more to do, beaten-down industries such as hospitality and leisure saw a marketable improvement in hiring. With vaccination deployment finding its way into all of our communities, better days are ahead. Unemployment fell to 6.20% and the labor force participation rate was 61.40%, unchanged.
A move higher in interest rates should not be a surprise with an improving jobs picture, major fiscal stimulus on the way, and hopes for a return to normal on the horizon. Pent-up demand should lead to an upswing in GDP and put additional pressure on wages. Commodities are also signaling inflation is on the way.
Real estate should serve as a buffer should inflation rise more than anticipated. Keeping all of this in perspective, interest rates are still accommodative. Still, keep an eye on a break-out higher to 1.75% on the 10-year Treasury as “go time” for those still not ready to purchase or who are watching the market for an optimal time to refinance.
