Who Benefited From Falling Stocks

As stock markets fell September 15, 2008, so did mortgage rates

Yesterday, the stock market suffered its largest one-day point loss since September 17, 2001, and its sixth-largest point loss in history.

Not everyone got punished, however. Two groups of people, in particular, welcomed yesterday's losses:

  1. Home buyers out shopping for a mortgage
  2. Homeowners that snoozed through last week's mortgage rate drop

See, as the stock market dropped yesterday, investors anxiously moved their money away from risky investments like stocks and into the safe haven of government-backed debt.

This includes mortgage-backed debt, of course.

As traders poured into bonds, bond prices rose. They did so beginning at Market Open, all the way into Market Close. And, because mortgage rates move in the opposite direction of mortgage bonds prices, mortgage rates fell Monday. A lot.

Today, the Federal Open Market Committee meets, adjourning from its scheduled conference at 2:15 P.M. ET. In the Fed's press release, among other things, markets expect Ben Bernanke & Co. to address the financial system's stability -- or lack thereof -- that helped to fuel Monday's selling action.

If markets find the Fed sympathetic, expect stock markets to rally, and mortgage rates to rise.

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