- Interest rates key to market & economy
- SWF’s adds new source of liquidity
In my opinion, the thing most likely to effect the future direction of the stock market is the 10-year interest rate. As the ten-year treasury rate climbs you will see an increase in mortgage rates.
Mortgage experts estimate that 1.5 trillion adjustable rate mortgages will come due in 2007. If rates continue to climb (the 10-year treasury rate has risen from 4.5% to 4.85% in the last 60 days), these adjustable rate loans will reset at higher rates, which translates into higher monthly mortgage payments. Add $4.00 per gallon gas and the consumer will experience a real crunch in discretionary income.
Higher rates will also give stock market investors an appealing low risk place to go with investment assets. The trend in the ten-year Treasury bond turns down this week and I am adding that to the negative side of our ledger.
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Posted by Michael Chapman at 1:00 PM UTC
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Posted by Michael Chapman at 12:00 PM UTC
- Shanghai Index shrugs off rate hike
- Stock, Bonds, take separate paths
Friday, after the markets closed, the Chinese central bank raised interest rates for the fourth time in a year and also ordered banks to set aside more reserves, reducing the amount of money available for lending (AP). I was certain that this would be the catalyst to start a worldwide market sell off.
On Monday, the Shanghai Index opened down 3.2% and then rallied to finish the day up 1%, a record high. Excuses for this irrational behavior vary but fall along the line that the retail investor is controlling the Chinese Market. The retail investor is not as concerned about rising interest rates as the institutional investor.
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Posted by Michael Chapman at 9:48 AM UTC
- A 2 to 4 percent correction due
- Advisor Sentiment added to Bear side
Important market divergences suggest a correction is imminent. Today’s new high in the Dow was not accompanied by a new high in the cash S&P 500 index.
While the Dow has continued to make marginal new highs over the last six trading days, both NYSE breadth and volume have been negative on 4 of these days.
I still expect new all time highs on the S&P 500 index but expect to see a pull back from current levels first. The Dow Jones Index is extended 2.5% above its 21-day moving average and 4.5% above its 50-day moving average. A two to four percent pull back in price would still leave the market in an uptrend and present an excellent buying opportunity.
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Posted by Michael Chapman at 2:26 PM UTC
