Commentary: Trading activity in the mortgage market is thin and sporadic this morning as investors await Fed Chairman Bernanke's 1:30 p.m. ET speech and President Obama's address to a joint session of congress at 7:00 p.m. ET. Most market participants realize there is no such thing as magic pixie dust that will enable either the Fed or the White House to suddenly and permanently relieve the nation's employment woes.
Media sources have been talking up the likelihood that Obama will unveil some $300 billion in tax cuts together with another round of government spending on infrastructure and job training programs. For his part Fed Chairman Bernanke will speak on the economic outlook and market participants will be listening intently to see if Mr. Bernanke floats a hint that central bankers are fleshing out the details of "Operation Twist," a strategy aimed at lowering longer-term borrowing costs for businesses and borrowers alike.
The mortgage market has already priced in the expectations I have outlined above - so unless Mr. Bernanke or Mr. Obama deliver a surprise of a major magnitude (a low probability outcome) - it is unlikely either event will influence the current trend trajectory of mortgage interest rates much one way or the other. If this assessment proves accurate, the mortgage market will continue to take directional cues from trading action in the stock markets. Higher stock prices will tend to push mortgage note rates fractionally higher while lower stock prices will likely prove supportive of steady to perhaps slightly lower rates.
I expect a price pull-back for the Dow Jones Industrial Average toward the 11,000 level to occur within the next day or two. If buyers aggressively show up as the DJIA trades at, or near the 11,000 mark -- the probabilities will favor a rally in the stock market lasting through mid-October. If the rally develops as expected it will likely have the potential to carry the price of the Dow all the way back to the neighborhood of 12,800 or so. I'll be watching closely. Should this scenario actually develop - the lowest mortgage interest rates of the year will likely have been set during the week ended August 19th.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
