This will likely be one of the craziest falls we’ve seen in years when it comes to financial volatility.
The labor market continues to show signs of serious weakness. The world’s investors are starting to call the bluff of countries living on borrowed money (UK, France, Japan, Germany, etc.) and those countries are paying record-high bond yields as a result.
America’s commercial real estate crisis (resulting from mass vacancies and higher rates) finally seems to be coming to a head.
Stock Market Correction Is Coming!
And – I have never seen so many predictions of a major stock correction. Among many other indicators, this post on X uses a bond chart to imply it’s all but certain.
The Buffett Indicator (S&P 500/GDP) is close to 220% and at levels never before seen. And analyst Brent Johnson is adamant we’ll see a correction in Q3 for many reasons – which is meaningful, given how bullish and accurate he’s been in the past.
The Fed Cut 50 Bps Last Year and Rates Rose
The Fed cut the Fed Funds Rate 50 bps last year, and mortgage rates famously rose, as I have illuminated dozens of times.
Mortgage rates rose in response to: (1) a very strong employment report that surfaced shortly after the cut, and (2) inflation concerns.
Rates did not fall on the day the Fed Cut because the market had priced in the cuts and because the Fed does not control long-term rates, as I point out in this blog: 3 Reasons Mortgage Rates Don’t Always Fall When The Fed Cuts Rates.
So Why Do I Think Mortgage Rates Will Fall This Year After the Fed Cuts?
The markets are expecting the Fed to cut, so rates will not fall on the day the Fed cuts – unless the Fed says or does something unexpected, or unless additional negative economic news surfaces on the day of the cut.
But I do expect rates to fall this year after the Fed cuts in general because the labor market is softer this year, and because the inflation is tamer this year as well.
In addition, overseas economies are sliding into recession, and stock market corrections usually result in a “flight to safety” (where investors move from stocks to bonds), resulting in lower rates.
The U.S. economy seems to be weaker overall, too, with less “liquidity” flooding the market, as a result of tariffs and other factors – like famed economist Lacy Hunt explains in this recent Thoughtful Money podcast: The Economy Is Seizing Up While The Fed Dithers.
Mr. Hunt believes the Fed needs to make very large cuts to fend off tariff damage.
TLDR: Many prominent analysts expect much lower rates this fall, finally, and that is very good news for a beleaguered housing market (even though the cause of the lower rates is not good news for the economy overall).
