• 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 PDT