All eyes were on the disruptive weather caused by two major hurricanes: Hurricane Harvey which devastated Texas and Hurricane Irma which is about to hit Southern Florida as of this writing. Hurricane Jose is lined up behind Irma, adding another question mark to the level of potential destruction. Repair estimates for the destruction wreaked by hurricanes Harvey and Irma will be in the hundreds of billions of dollars. While one may think that these disasters hitting major cities would negatively affect the stock market, the temporary loss of revenue caused by these natural disasters will be offset by the major re-building efforts and should not impact US economic growth over the long term.
Inflation resistant data continues to perplex our Federal Reserve, and there were some comments from the Fed that additional interest rate hikes may be put on hold until the beginning of next year. With a combination of nearly full employment, high valuations on equities and real estate, and a slow, but steady growing economy, one would think inflation would be present. However, inflation readings to date have persistently come in lower than expected. Interest rates are the beneficiaries of these poor readings, as rates look to remain lower for longer.
With the 10-year Treasury yields trading under 2.100%, we are biased toward locking in interest rates given the attractive rates at the moment. We feel it’s much more likely that interest rates will rise rather than fall.