Market Commentary 8/24/18

Rates are set to close flat for the week as we near the end of summer and many traders are out of the office. The U.S. stock market reached a milestone as the longest bull run on record. All signs domestically point to the “Goldilocks” environment continuing for stocks and bonds as the economy is very healthy, consumers are spending, unemployment is low, and inflation is in check. Fed Chairman Powell echoed our comments in his remarks at Jackson Hole and his comments confirmed that a 1/4 point increase in the overnight lending rate is a given at the September FOMC meeting and that continued gradual increases in short-term lending rates are appropriate given the current positive economic environment.

With Europe’s economy slowing, Japan’s interest rates at or below 0% and China beginning to stimulate again due to a weakening economy, U.S. interest rates appear to be capped by these exogenous circumstances, even as we reiterate that our domestic economy is the best we have seen in many years. Also capping interest rates are the factors of ongoing trade tensions with China, a decline in emerging stock markets, and subdued inflation.

In housing news, Toll Brothers reported better than expected earnings as luxury home buyers continue to be active even with the increased rates and home prices juxtaposed with middle income and lower income borrowers being priced out as new home sales continue to fall even with more inventory coming on the market.

With the 10-year Treasury note trading at ~2.83%, interest rates are still low and accommodative. While we don’t have a crystal ball, we continue to maintain a locking-in bias for new loans as we see more reasons for interest rates to move up rather than down.