In the “Strange Case of Dr Jekyll and Mr Hyde”, Robert Louis Stevenson wrote about a London lawyer who investigates the strange occurrences between Dr. Jekyll and Mr Hyde. The tale is one of a split personality, one that has both good and evil which are quite distinctive of each other. If Robert Stevenson were alive today, he could write the same piece as an op-ed for the Wall Street journal. Yesterday, the stock market’s personality was one of fear and confusion when Fed Chief Bernanke opened his mouth, calling the economy “unusually uncertain.” The results produced a 100 plus point selloff.
Today, the good personality appears, as the Fed Chief stuck to yesterday’s script and Big Caps like Caterpillar and 3M wacked it out of the park (better bottom line earnings and top line revenue stronger than expected). Results, Dow up over 200 points as if everything in the economy is all right. Euro zone manufacturing numbers were better than expected, adding a little icing on the cake. The point I’m trying to make here is that volatility is at all time highs. This is a product of an economy that is slowly coming out of a recession, showing bright spots from time to time while evil in the form of housing and employment woes let their personality loose just the same. Expect this type of market trashing until a clear direction can be found. One that points to a double dip or one that points to a more sustained recovery. We believe the latter has the highest percentage outcome.
Reasons being are that the Euro zone appears to be stabilizing (tomorrow’s stress test results will be key), large blue chip companies are doing pretty well despite the gloom and doom, and interest rates, both by the Fed and the market (mortgage backs) will be low until the aforementioned bias is intact and investor sentiment turns bullish. Just the same, do not take anything for granted. Earlier today, Weekly Unemployment Claims jumped 37K to 464K while Continuing Claims fell 223K. Distortions here are huge, maybe Consensus worker layoffs and long term claimants felling off the table. Time will tell. June Existing Home Sales took a dip as well, down 5.1%, the second consecutive month of declines. The number was actually better than economists expected. Wow, great news, their only down 5.1%. Let’s call the Claims and Existing Sales today’s evil twins.
All of the above has pinched the 10 year note and mortgage pricing but to no great degree. 10 year down 10/32’s, MBS off 4/32’s. The selling has not hurt the chart, just neutralized conditions a bit. We see neither bull nor bear in control or as we like to call it, a Goldilocks market (just right). With the market being so psycho and at historic lows in Austin mortgage rates, best to be careful. You never know if tomorrow will be Dr Jekyll or Mr Hyde.
