Reaction & Commentary
And apparently this is just the very beginning after all home sales just posted their first year-over-year decline in more than a decade JP Morgan warns that we’re already past the point of no return and the Federal Reserve has indicated that they’re nowhere close to being done that’s why it’s incredibly
Important that we discuss exactly what they say is going to happen throughout the rest of 2023 the new changes taking place and which of your Investments are most likely to be impacted on this episode of a man is suing Buffalo Wild Wings because they’re charging too much for its boneless wings which are
Basically nuggets although before we start as usual if you appreciate the Nuggets of information in this video it does help out tremendously if you subscribe and if you want to be kept up to date on topics like this and more detail that I’m able to cover in a video
Feel free to add my newsletter Down Below in the description again it’s totally free so thank you guys so much and now with that said let’s begin alright so before we talk about the most recent rate hike in the Federal Reserves outlook for the rest of 2023 we have to
Talk about the latest inflation report because once you understand this everything else is going to begin to make a lot of sense see throughout 2022 the Federal Reserve increased their interest rates from zero percent to four and a half percent in their fastest rate hike ever in history and as a result
Inflation has been steadily falling from its peak of 9.1 percent back in June of 2022. however it’s still nowhere close to being over that’s because on March 14th the latest inflation report revealed that inflation is still up six percent from a year ago with prices rising 0.4 percent from the month prior
Implying that if we stay in this exact same trajectory we could potentially see sub 5 inflation by this time next year now I realize that we’re absolutely getting ahead of ourselves here and we can’t just assume that everything is going to continue you indefinitely at the same speed especially because as
We’ve seen with Silicon Valley Bank anything can change on a moment’s notice like the FED skyrocketing balance sheet but in terms of what’s leading inflation right now the biggest contributors none other than housing as they reported the overall cost for shelter increased by 0.8 percent month of a month or 8.1
Percent year-over-year which is a big deal when housing makes up over a third of the overall inflation reading on top of that when you dig a little bit further you’ll see that the rent index also Rose by 0.8 percent month over month and owner’s equivalent rent Rose by 0.7 percent month over month
Suggesting that inflation is sticking around a lot longer than we expected however the good news is that rents are often seen as a lagging indicator because the data that we have today is often a reflection of the deals and leases that were signed months prior and with national rents beginning to drop
Chances are that might be reflected in upcoming inflation reports now in terms of everything else though besides food which increased by nine and a half percent over the last year and point four percent month over month almost all other items declined like energy and gasoline down point six percent used
Cars down 2.8 percent Medical Care Services down point seven percent which is a really good sign that inflation is beginning to come down so in terms of the most recent rate hike as of a few hours ago in what Jerome Powell said is likely to happen over these next few
Months we should first discuss the implications throughout the entire Market because a lot is beginning to happen all of this brings me to an extremely interesting article from The New York Times with the headline that low rates Were Meant to last without them finances in for a rough ride as
They explained the 2010s were the era of two percent were interest rates inflation and growth were all around that same level until of course something broke in this case Silicon Valley Bank was one of the first dominoes to fall because the fed’s rapid rate increases caused their bond values
To drop during a Time the Venture Capital was drying up during a Time the company expenses were also going up causing their portfolio to take take a massive hit although what’s very interesting is that this isn’t just unique to Silicon Valley Bank in fact it said that U.S banks are currently
Sitting on 620 billion dollars of unrealized losses from treasuries that had fallen in value as a result of the Federal Reserve from there they then go on to explain that Rising interest rates have been a recurring source of financial pain throughout the United States with a sharp rise in interest
Rates causing the Savings and Loan crisis throughout the 1980s the bursting of the.com bubble throughout the early 2000s and the decline in home prices during the 2008 great financial crisis but even with a series of disastrous events behind us some say that we could see a federal funds rate as high as 6
Percent by the end of the year and that’s what leads us to what happened today like I mentioned earlier the Federal Reserve raised their interest rates by an additional 25 basis points as expected despite the banking turmoil that we’ve seen throughout the last week on Broad scale they’ve indicated that we
Could have a peak federal funds rate to 5.1 percent at the end of 2023 suggesting that we likely have two more rate hikes ahead of us on May 3rd and June 14th then it’ll be up to them to take a wait and see approach if inflation begins coming back down if it
Does it’s expected that the hold rates steady for the market to adjust and if it doesn’t then well good luck to all of us because rates are probably going even higher or I guess more simply put they expect to keep rates higher for longer so if everything stays the same exactly
On track we’re probably not going to see a reversal anytime this year now on a positive note even though they did revise the GDP numbers downwards there’s nothing that indicates a recession according to them as hard as that might be to believe that’s largely because they don’t expect the unemployment rate
To exceed much more than four percent and in the process we could avoid the hard Landing that so many economists predicted again who knows if this will actually come true but according to their report a lot of it is positive for the economy in addition to that Jerome
Powell also indicated that the banking crisis had a similar effect to an additional rate hike because lenders are pulling back in credit are tightening in a way this allows them more room to take a step back from additional rate hikes because the economy is slowing down one
Way or another so in the big picture that just means that they’re expected to raise rates 25 basis points two more times and then they’re going to hold them there throughout the rest of the year until hopefully inflation comes back down now in terms of the rest of
The market look no further than housing for the first time in 10 years National home prices saw a year-over-year decline of 1.2 percent as sellers responded to a drop in home buyer demand spurred by elevated mortgage rates to put that into perspective as Redfin explains just 44
Of homes that went under contract in February did So within two weeks down from 60 percent from the year earlier in addition to that new listings coming on the market are also incredibly low because many homeowners have already locked in their interest rate also it’s known as the lock-in effect so here’s
The thing as of right now Goldman Sachs reported that 99 of homeowners have an interest rate below what’s currently being offered on the market and 63 percent of those loans for between two and a half to four percent that means the current homeowners have very little incentive to sell their house right now
And get rid of an interest rate that would be significantly higher if they moved especially if they’re one of the 28 that have a rate below three percent on top of that if a homeowner currently has a three percent mortgage prices would have to drop by 35 for that
Identical home to have the same monthly payment as today’s current rates of six and a half percent so in many cases it doesn’t make Financial sense to sell unless they absolutely have to now of course that doesn’t mean that low inventory is going to lead to sellers
Making more money in fact quite the contrary Goldman Sachs believes that housing values are on track to fall 6.1 percent throughout 2023 and this could have been much worse if it were not for a lack of new Supply which is keeping home prices relatively High even though the market is slowing down but
Throughout all of this there is some good news in the fact that mortgage rates recently have plummeted in the wake of the banking collapse with some rates falling below six percent event prompting the buyers on the sidelines to begin making offers it’s still too early to tell just how well these rates will
Stick or how long they’re going to be around in the foreseeable future but overall that’s leading others like core logic to believe that home prices may start to creep back up by a rate of 3.1 percent year-over-year simply because there’s still demand to buy houses once interest rates go back down although
That’s really only the very beginning because in addition to that we also have the stock market now the good news is that on the surface inflation does seem to be subsiding which in turn could be bullish for stocks that benefit from lower rates not to mention the s p 500’s
Price to earnings ratios back to the same levels that we saw in 2018 thanks to Falling prices on top of that it’s also found that back to back down years for the stock market are incredibly rare for instance the S P 500 is only seen consecutive years of negative returns
Three times since 1957 suggesting that we have a good chance of being up again by the end of the year that’s because the stock market is very much Forward Thinking meaning it doesn’t matter so much what’s happening today but instead what the market thinks is going to
Happen over the next 6 to 12 months and if the expectation is that we’re soon approaching the terminal federal funds rate to 5.25 percent well then we’re only a few more raid hikes away from being done as far as what analysts think is going to happen one Reuters poll
Suggested that the market could end the year up five percent from today’s levels Barclays believes we could see an S P 500 declined 36.75 Morgan Stanley thinks we’ll stay flat at 3 900 didn’t Bank of America along with Goldman Sachs predicts 4 000 by the end of the year JP
Morgan though is the most bullish expecting 4200 by December but then again Credit Suisse also said something similar and uh yeah we’ll leave it at that anyway to make things even more confusing the financial Samurai blog pointed out that the spread between the best and worst case scenarios is the
Largest that we’ve seen since 2009 with estimates ranging anywhere from 3 600 all the way to 5 000. so basically no one has any clue what’s going to go on and the market reacts to these arbitrary numbers which change by the day which could mean absolutely nothing because
Everyone is out there just making their best guess now as far as my own thoughts about the meeting today I’ll be honest I don’t think we got anything that we didn’t already know like the Federal Reserve is already committed to fighting inflation they’re trying to get us back
Down to our two percent Target and they don’t want the entire economy to implode in the process but the bigger issue right now is simply mitigating the banking crisis after all Credit Suisse was once worth almost 300 billion dollars and just sold recently for three billion dollars to UBS even despite
Being given 54 billion dollars by the Swiss National Bank now even though that isn’t directly related to the United States there is a lot of overlap and if investors think there could be an issue with banks that could self-perpetuate a belief that there could actually be a problem with the banks point being
There’s a narrative that these rate hikes are making it more difficult for banks to stay afloat because they have money tied up in bonds that are falling in value that’s why the FED now has to very carefully manage inflation versus the overall health of the banking system
Even though banks are getting as much liquidity as they need like just look at the fed’s balance sheet essentially they were able to buy out on profitable bank loans and hold them to maturity even though they’ve now taken on more debt all of this complicates an already very
Delicate situation that’s why I believe they’re likely to continue to take a wait and see approach throughout the rest of the year remember there’s nothing that says they can’t temporarily pause rate hikes in the future and then come back to it once conditions have improved that’s why it’s so important to
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