Mortgage rates wrapped up the week at their lowest levels since September 22, thanks once again to some turbulence in the tech sector. But the real surprise wasn’t just how low rates went. It was how stubbornly they stayed there, even after a jobs report that would normally have sent them climbing.
Last week, we mentioned that concerns surrounding the tech industry could help keep mortgage rates down, while stronger economic data might put a damper on that progress. Well, we got both this week. Thursday delivered a major tech sell-off, helping push bond yields and mortgage rates lower. Then Friday arrived with much stronger-than-expected job growth, yet mortgage rates barely flinched.
We also pointed out that a bad day for the NASDAQ doesn’t automatically translate into a great day for mortgage rates. This week provided an even better demonstration. By Thursday, the NASDAQ had dropped roughly 14% from its October highs. However, each additional wave of selling was delivering a smaller benefit to mortgage rates. Apparently, even bad news can have diminishing returns!
Looking at the bigger picture and adjusting the chart’s scale makes it easier to compare the relative movements in stocks and bonds:
Why Does the Tech Sector Still Matter So Much?
The AI boom has been fueled by enormous amounts of spending and borrowing. But when investors start questioning whether all that investment will deliver the growth everyone is expecting, they may decide it’s time to move some money into safer investments. One popular destination? Bonds, which play an important role in determining mortgage rates.
There’s another piece to this puzzle. If companies slow down their AI-related spending, that could eventually mean slower economic growth, less inflation pressure, and fewer corporate bonds competing for investors’ money.
This week’s midterm election results may have added another layer of concern, particularly if investors believe the outcome could create additional hurdles for data center construction. That’s a possible contributing factor, not a confirmed explanation for the sell-off. After all, investors were already questioning the pace and sustainability of AI spending before the election results came in.
Why Didn’t the Jobs Report Send Mortgage Rates Higher?
Here’s where things get interesting.
Employers added 165,000 jobs in October, considerably more than the 65,000 economists had expected. The unemployment rate also declined, even as more people entered the labor force.
In other words, this was a pretty impressive jobs report. And under normal circumstances, stronger employment data tends to put upward pressure on interest rates.
The bond market initially reacted as expected, but most of that reaction vanished within minutes. By the end of the day, mortgage rates had essentially held their ground.
So, what happened? There are several possible explanations.
First, the Federal Reserve has recently made it clear that inflation remains its primary concern. Investors may therefore be paying closer attention to inflation data than employment numbers.
Second, while the headline job growth figure was a significant upside surprise, the unemployment rate didn’t deliver quite the same shock. Investors have increasingly been watching that number as an important measure of labor market conditions.
Finally, although tech stocks recovered somewhat on Friday, their rebound was relatively modest compared with Thursday’s losses.
Of course, there’s a difference between explaining something unexpected and predicting it ahead of time. Had we known the jobs numbers in advance, betting on mortgage rates to remain unchanged would hardly have been the obvious choice.
These explanations help us understand what happened after the fact, but they don’t make the outcome any less unusual. Sometimes the market simply refuses to follow the script.
There’s also an important timing consideration. October’s employment and inflation reports don’t yet reflect the potential consequences of this week’s sudden shift in investor confidence. If bond investors are viewing the tech sell-off as an early warning sign of weaker future economic growth, then strong reports describing what happened in the recent past may carry less weight than usual.
What Could Put Mortgage Rates to the Test Next Week?
The biggest scheduled event is Tuesday’s Consumer Price Index (CPI) report.
With the Federal Reserve putting so much emphasis on inflation, this report arguably has more potential to move mortgage rates than this month’s jobs report did.
A cooler-than-expected inflation reading could reinforce the recent improvement in rates. On the other hand, a hotter reading could put upward pressure on rates, even if the tech sector continues to struggle.
For a little historical perspective, remember that the CPI report released in early September helped kick off the move toward the recent highs in longer-term interest rates. So, this is definitely one to watch!
Wednesday’s Veterans Day bond market closure adds another wrinkle. Traders adjusting their positions around the holiday could make market movements surrounding Tuesday’s CPI release a little harder to predict.
And, of course, the tech sector isn’t going anywhere in this story just yet. Continued weakness in tech stocks could provide additional support for lower mortgage rates. A substantial recovery, however, could take away some of that support.
The Bottom Line
For now, borrowers have another week of improvement to celebrate. Mortgage rates are sitting at their lowest levels in more than a month, and they’ve demonstrated a surprising ability to hold those gains even in the face of stronger economic news.
That’s encouraging, but the next test is just around the corner.
Tuesday’s inflation report will help determine whether mortgage rates can maintain their recent progress. If inflation cooperates, we could see another positive week. If it doesn’t, the market may remind us that mortgage rates rarely enjoy a smooth, uninterrupted ride.
In other words, enjoy the improvement while it’s here, but keep an eye on Tuesday. The market still has a few surprises up its sleeve!