Market Commentary – 5/27/16

Trading is light today in advance of the long Memorial Day weekend. In economic news, the first quarter second reading of GDP rose to .8% from the first reading of .5%, which is lower than the expected .9%. This new reading, though a slight improvement, is still weak. On the housing front, home sales climbed in April to the highest level in 10 years. This is a good sign that the housing market is gaining momentum propelled by steady-as-she-goes job creation coupled with low interest rates. This is positive news for mortgage professionals, as well as for appliance manufacturers and home builders.

June will be an interesting month for the bond and equity markets as there has been some hint from the Federal Reserve that a rate increase in short-term interest rates is now on the table. We will be watching how this news affects these respective markets later in the month. One negative effect of the recent Fed-speak on short-term interest rates is a flattening of the yield curve. This has put some pressure on the shorter end of the yield curve, while the long end of the curve has not risen much. Still, interest rates remain attractive regardless of the flattening of the yield curve.

It’s important to monitor the yield curve because it serves as a benchmark for all mortgage and lending rates.

At the moment, our bias is toward cautiously floating interest rates into the month of June, with a watchful eye on the markets.