Not much to report today as the bond market is closed for Veterans Day. Stocks are trading, up 27 points on the Dow and 11 points on the Naz. Dovish comments out of yesterday’s string of Fed speakers has given the equity market a boost. We are trading 10 year note futures electronically and Europe is trading cash treasuries. Both are doing a little better than yesterday’s close with the 10 year note up 8/32’s. Should provide for steady to slightly better mortgage pricing in the morning.
Since stocks are the game today, let’s talk the equities and your 401K. Can the market rally without the leaders? Why is the Dow at a new high while the Nasdaq/S&P are lagging behind? You have to keep in mind that the Dow is a price weighted index while the other indexes are cap weighted machines. Another factor is that Banks and other financial institutions, which led the market back from the March abyss, have failed to continue their rally over the past couple of months. Part of this is due to the fragmented playing field such as JPMorgan versus Citi. Some are making decent profits while others are on life support. With regulatory concerns waiting in the wings, it will be difficult for this sector to gain any traction. One of two things will happen. Either the economy will improve and bring the banks with it or another sector, say technology or commodities will become the new leader. Given the backdrop of a slow, two to three year economic recovery, along with pending tax increases and regulatory concerns, it’s hard to see much more than a 10% addition gain (Dow) in the cards.
10% plus unemployment and a weak U.S. dollar are ok short term but stock bearish in the long run. With this in mind, we still have the Fed and it’s never ending easy money program, very low inflation, and market risk that will support the bond/MBS market well into 2010. Blue chip, high quality companies are the only way to go in today’s stock market. As for mortgage pricing, it’s “steady as she goes ” into the new year.
