Santa Fe Las Campanas Stock/Bond Market

Friday’s bond market has opened in positive territory despite a strong opening in stocks. The major stock indexes appear to be keeping the previous day’s gains for once, at least at the moment. The Dow is currently up 108 points while the Nasdaq has gained 11 points. The bond market is currently up 22/32, but we will still see an increase in this morning’s mortgage rates of approximately .250 – .375 of a discount point due to significant weakness late yesterday.
Yesterday’s stock rally allowed the Dow to recover 423 points and the Nasdaq 111 points of their recent losses. That, along with a weak 30-year Bond auction, led to further bond market selling during afternoon trading. Many lenders revised pricing higher late yesterday, but the size of the increase varied greatly between lenders. It will be interesting to see how the day goes as we wrap up one of the most memorable and volatile weeks that many can recall. The bond market is showing some strength, bucking the traditional “higher stock prices equal bond selling” trend. I would not be surprised to see more movement during afternoon trading as investors close out positions and protect themselves over the weekend. This may lead to afternoon changes to mortgage rates yet again today.
The Commerce Department reported early this morning that retail level sales rose 0.5% last month, meaning consumers spent more in July than they did on June. By theory, that is negative news for the bond market and mortgage rates, but since it matched forecasts it has not has not had much of an impact on this morning’s trading. If more volatile auto-related transactions are excluded, we saw a larger than expected increase in sales. However, it appears to have had no bearing on today’s rates.
Today’s second report came from the University of Michigan, who said their Index of Consumer Sentiment for August fell to 54.9. This was well below forecasts of 62.5, indicating a significant decline in consumer confidence about their personal financial situation. That is certainly good news for the bond market and mortgage rates because it means that consumers are less apt to make large purchases in the near future, limiting economic growth.
Next week brings us the release of several relevant economic reports, including two key inflation indexes. None of the data is scheduled for release Monday, so we can expect to see the bond market react to stock strength or weakness and any news that comes over the weekend. The most important data is scheduled for the middle part of the week.