The major stock market indexes extended their gains with the S&P 500 Index and the Nasdaq Composite Index both reaching new all-time highs during the week. A mixture of diverse earnings reports, political events and economic news prompted investors to take a wait-and-see approach during the week which translated into modest market swings. The earnings calendar was led by technology titan Apple, which ended the week with a five point gain even though second quarter revenue and future guidance reported after the close on Tuesday seemed to disappoint a number of investors.

Political events included legislation to continue funding the federal government until September and passage in the House of Representatives for a health care plan alternative to the Affordable Care Act. Investors also cast their attention on an upcoming presidential run-off election (Sunday May 7) between polling favorite and pro-European Union (EU) globalist Emmanuel Macron and anti- EU nationalist Marine Le Pen.  Global markets reacted favorably ahead of the election as it was believed a Macron win would be more beneficial for the EU economy.

Economic reports were mixed during the week, but these were overshadowed by the Labor Department's April Employment Situation Summary (Jobs Report).  The report was stronger than forecast with nonfarm payrolls reaching 211,000 versus expectations for 180,000 new jobs. Non-farm private payrolls added 194,000 jobs versus a forecast of 175,000. The unemployment rate fell to a decade low of 4.4% and was lower than the consensus forecast of 4.6%. Average hourly earnings increased 0.3% to match the consensus forecast while March's reading was revised lower to 0.1% from 0.2%. The average workweek was reported at 34.4 hours – in line with estimates.

The bond market initially reacted negatively toward the jobs report on Friday before recovering, but was pressured lower earlier in the week after the Federal Reserve's post-FOMC meeting statement Wednesday regarded weak first-quarter growth as "transitory." This strengthened expectations for a June rate hike and drove Treasury yields higher. Indeed, the fed funds futures market is currently pricing in a 78.5% probability for a rate hike at the next Fed meeting on June 14.

As for mortgages, mortgage application volume fell slightly during the week ending April 28. The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) retreated 0.1%. The seasonally adjusted Purchase Index increased 4.0% from the prior week, while the Refinance Index decreased 5.0%. Overall, the refinance portion of mortgage activity decreased to 41.6% total applications from 44.0% from the prior week.  The adjustable-rate mortgage share of activity decreased to 8.4% of total applications. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.23% from 4.20% with points decreasing to 0.32 from 0.37.

For the week, the FNMA 3.5% coupon bond dropped 20.3 basis points to close at $102.594 while the 10-year Treasury yield increased 6.13 basis points to end at 2.35%. Stocks ended the week modestly higher. The Dow Jones Industrial Average rose 66.43 points to end at 21,006.94. The NASDAQ Composite Index advanced 53.15 points to close at 6,100.76 and the S&P 500 Index added 15.09 points to close at 2,399.29. Year to date, the Dow Jones Industrial Average has gained 6.30%, the NASDAQ Composite Index has advanced 13.33%, and the S&P 500 Index has risen 7.17%.

This past week, the national average 30-year mortgage rate held steady at 4.09%; the 15-year mortgage rate was unchanged at 3.34%; the 5/1 ARM mortgage rate was unchanged at 3.08%; and the FHA 30-year rate increased to 3.85% from 3.80%. Jumbo 30-year rates rose from 4.35% to 4.36%.

Mortgage Rate Forecast with Chart – FNMA 30-Year 3.5% Coupon Bond

The FNMA 30-year 3.5% coupon bond ($102.59, -20.3 bp) traded within a 53 basis point range between a weekly intraday high of $102.89 on Wednesday and a weekly intraday low of $102.36 on Thursday and Friday before closing the week at $102.59. Mortgage bonds ran into what proved to be a solid line of resistance at the 38.2% Fibonacci retracement level at $102.81 on Monday through Wednesday before moving below support provided by the 25-day moving average on Thursday. The bond then reacted to the employment report on Friday with an increase in volatility before settling higher to form a small bullish engulfing lines candle pattern which is a positive finding. However, the slow stochastic oscillator shows a drop in momentum as it trends lower toward the "oversold" line. These conflicting technical signals suggest the bond could trade sideways between support and resistance levels this coming week, and should this happen mortgage rates ought to hold steady with little change.