Market Analysis

Stocks have regained their footing, with the Dow currently up 125 points.  Bonds are flat after a down day yesterday.  Yesterday afternoon the Fed released their post meeting statement indicating that economic activity was improving but that high unemployment and lack of inflation pressures would most likely justify keeping short term rates at very low levels for the forseeable future.  It is important to note that the Fed does not directly control mortgage rates which are market driven and which correlate with the auction prices of longer term US Treasury notes, particularly the 10 Yr Treasury note.  Investor appetite for US Treasuries is a function of supply and demand and of investor perceptions of future inflation and currency movements (if a foreign investor purchases a long term debt at a set interest rate that is not inflation indexed, they are very concerned with their post-inflation and post currency exchange return).  We have been fortunate that the European debt crisis occurred just as the Fed stopped purchasing mortgages, as this has driven money into US Treasuries and Fannie Mae and Freddie Mac mortgage-backed securities (MBS) as a safe-haven move.

In economic news today, Initial Jobless Claims for the week ended 4/24/10 were down to 448,000, a reduction of 11,000 from the week prior.  This was just slightly worse than market expectations for a reduction of 14,000.  Continuing Jobless Claims for the week ended 4/17/10 were down to 4.645 million vs expectations for a drop to 4.25 million from a revised 4.663 million the week prior (the prior week's Continuing Claims had been revised up to 4.663 million from 4.646 million).  The slightly weaker than expected employment data and the continuing European debt saga has helped keep bonds from performing worse today even as the stock market rallies.