Boost Your Stock Market Investments in 2019 By Watching Mortgage Rates!
2018 was a wild ride and one of the worst years for stocks since the market crash in 2008. The Dow fell 5.6%, S&P down 6.2% and the Nasdaq was off by 4%. What caused these huge swings and what can you do to boost your stock market investment returns in 2019?
Let’s dive right into it. After a decade of low rates, new tax cuts across the board, and a President that is pro-business we’ve had a great run. In 2018 there were some key signals that if watching mortgage rates and the specific levels they approached you could have saved hundreds of thousands of dollars in your investment opportunities. The key metric to watch is the the 10-year Treasury Bond – which is available on any website that has a financial section.
The “scare” number for 2018 was the bond approaching 3.00% – not to get to lengthy and confusing but, this level by most analyst would signal possible inflation and aggressive rate hike forecasts by the Fed. This first came to light to start the year when the bond market made aggressive moves upward as illustrated below by the 1st red arrow. The market would fall 10% from its January highs and have a week for the ages that triggered a huge sell off in February including: February 5th 2018, Dow loses 1175 points the largest 1 day decline in history.
10 Year Bond 2018 Chart January – December
To fully understand what happened this is important stuff so you can notice these trends next time (presuming no other major events are on the horizon). Fast Forward a few months to October 2018: The market isn’t going down without a fight and bounces back up and down shrugging off rate fears seemingly like the bull market will last forever. Everyone likes to make money in the market right? As we exited September, rates start taking the headlines again in the financial news. In the 1st week of October the 10-year Treasury note jumps to 3.16%, its highest level since July 2011. This sharp increase renewed fears causing heavy blows to the market, toss in a possible trade war with China and a Fed Chairman the market doesn’t like with his market comments.
October Volatility Starts:
October 10th Loses 832 points
October 11th Loses 546 points
October 24th Loses 608 points
The Dow continues to get hammered to finish the year with the worst December in 90 years (I won’t bore you with those declines) while rates start to retreat but, the damage has been done and fears of a recession start to loom. So what’s next? A fresh new rally starts in 2019 with the stock market on a tear upwards, renewed China trade optimism, toss in a government shutdown and quarterly results come in mixed.
The 10 Year Bond is now hovering in the 2.68% range and rate fears are all but forgotten with the distraction of politics leading the news. If data gets weaker in manufacturing or a global slowdown we could be in for lower rates as well. Typical volatility in rates will have daily fluctuations up or down from .0 – .07 anymore on the daily increase and get ready for more volatility in the market. Often the market will actually shrug off the intraday increase in rates and this is your opportunity to react by selling or taking profits off the table in your portfolio – the heavy hits to the market have generally come the following day as “higher rates” lead the headlines. Stay tuned on this key level the next time the 10 Year Bond starts approaching 3.00% with a top end of 3.25%, if you time it right you just might avoid these swings by repositioning your investments!
Written By: Steve Head, Mortgage Expert, Top Producing Loan Officer, Texas Premier Mortgage President
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