The stock market rose on solid 3rd quarter economic growth and quarterly earnings. The US economy grew robustly at a 3% annual rate in July through September. This marks the economy’s best six month stretch since 2015. Many see the GDP report as a blowout win — which gives the Fed more ammo for a rate increase in December.
As we know, good news for the economy is usually bad news for mortgage-backed securities (MBS) and mortgage rates. Enthusiasm for equities caused a sell-off in the bond market. When long term bond yields go up, home loan rates tend to follow. Rates have inched up in past weeks.
The market also responded to news that the House narrowly adopted a budget that sets the stage for a rewrite of the US tax system. As expectations of passing tax reform increases, along with speculation that Trump will appoint a more pro-growth Fed chair, MBS and rates will continue to see pressure. However, there is uncertainty swirling around the GOP tax plan. Republicans have an incredibly ambitious schedule – the tough work of writing, amending and passing a tax bill before Thanksgiving. Many see the next few weeks as essential for the Republican economic agenda.