Uncertainty Takes Over the Markets

Last Week in Review: Uncertainty Takes Over the Markets

Fiscal Stimulus

Fiscal stimulus refers to policy measures undertaken by a government that typically reduce taxes or regulations and increase government spending in order to boost economic activity.

This past week, both Fed Chair Powell and Treasury Secretary Mnuchin called for more “fiscal stimulus” to help millions of Americans still in need.

The Fed has injected plenty of “monetary stimulus” by holding short-term rates at zero and buying Bonds, like Mortgage Bonds, to help keep long-term rates low. One problem is that many Americans can’t benefit from taking out a business loan if they can’t pay it back — hence, why more fiscal stimulus is needed.

Uncertainty Climbs

Congress can never seem to work together on behalf of the American people and when the Fed called out Congress for more at its Fed Meeting a little over a week ago, it seemed like something might happen.

But then the passing of Ruth Bader Ginsburg elevated political uncertainty to an extreme and seemingly removed any political will to see a new stimulus package prior to the election.

Adding to the uncertainty are renewed fears of another surge in coronavirus cases this fall and winter, like we are seeing in other parts of the globe, such as Europe.

Stocks and Rates Don’t Always Move in Tandem

September has been an awful month for Stocks with all market indices in a 10% correction or close. Normally, such a swift decline in Stocks would provide even better rates, but home loan rates actually ticked higher.

Supply and Inflation Fears

The Treasury sold $155 billion in securities this week, which weighed on the entire Bond market and limited the gains in price and rate. And ever since the Fed altered their approach towards inflation in late August, long-term rates like mortgages stopped improving and actually ticked higher.

Housing Continues to Shine

August New Home Sales came in at a 1.011 million annual rate — the best reading since 2006. The overwhelming demand for new homes, fueled by low rates, should continue for the foreseeable future.

Bottom line: Rates are at all-time lows and even though a fourth stimulus package doesn’t appear likely at the moment, sometimes Congress can surprise us. And if they come to an agreement, it will likely be good for Stocks and bad for Bonds as it brings even more supply and inflation fears.