Fear, Rates, and Fed Caution: Making Sense of the Market Landscape

The Weekly Recap

Home sales hit a 5 month high as prices increase as well, up 5%. The Dow and S&P hit fresh all time highs on Thursday. Recent Fed minutes show that they are worried about cutting rates too quickly as inflation data continues to hurt chances of a March rate cut. Farm land is the newest type of property that has caught the eye of hedge funds and PE firms. The ‘Magnificent 7’ stocks (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla) have higher profits than almost every country in the world. Capital One agreed to acquire Discover Financial which would be the largest M&A deal of 2024 as deal volume overall is heating up.

If you missed last weeks newsletter on the difference between Condos and CO-OP’s you can check that out here.

Fear, Rates, and Fed Caution: Making Sense of the Market Landscape

Par for the course with any news cycle, the ‘if it bleeds it leads’ mantra exists for any subject of conversation. Hotter than expected inflation numbers for January showed the CPI and Core PCE as well as the PPI all coming in higher, the doomsayers have start tossing the idea around of another rate hike occurring before rates start to get cut.

So lets back up for a second. As humans, we are highly emotional beings and the most powerful emotion we can experience is fear, (which is why the Fed is so careful in choosing its words when they release their meeting minutes) so clickbait headlines may be good for media platforms but they shake confidence in markets, which is why these ‘hot takes’ are important with context.

Recently released Fed minutes show that J. Pow and gang are increasingly cautious about dropping rates too quickly for fear of a 1970’s style level of stagflation. The people who are saying that a hike will occur before a cut does are the same people who were unrealistic in thinking that the first rate cut would happen in March of this year and that we would get a total of 6 rate cuts in 2024. This newsletter has maintained the opinion for the last four months that the first rate cut comes at the end of Q2 2024 and that we will see 3 total cuts this year.

Even with inflation data coming in higher than expected, it is not expected to defer the Federal Reserve from cutting rates this year. Not a single Fed policymaker has suggested that raising rates is on the table and Powell said recently that the Fed is at the end of its tightening cycle. In the short term, we will see pressure on treasury yields increase which will make rates tick up slightly but as inflationary pressures become ‘priced’ into the market, we will see the treasury yields soften, helping rates come down.

Market Performance

Here are how some other indexes and asset classes have performed as of this mornings opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past month as well as newly signed contracts in Manhattan. The market is HOT and dynamic, things are coming off the market almost as quickly as they come on.

Mortgage Rate Update

Strong incoming economic and inflation data has caused the overall market to think deeper about monetary policy which has pushed rates slightly higher. Historically, the combination of a vibrant economy and modestly higher rates did not meaningfully impact the housing market. The current cycle is a little different than historical norms as good economic news creates more affordability issues for homebuyers who may be affected even with the most minor of shifts in the marketplace.

News You Can Use

• Home Sales Hit a Five Month High, Pricing Increases NY Post

• Fed Fretted About Cutting Rates ‘Too Quickly’ Axios

• Will Home Buying Surge in 2024? SoFi

• Goldman Sachs Places Bets the First Fed Rate Cut to Take Place in June Bloomberg

• Fed Minutes Show Unease Over Premature Cuts Wall Street Journal

• Markets Start to Speculate if the Next Fed Move is Up, Not Down Bloomberg

• Fed Officials Will Dive Into Balance Sheet Debate at March FOMC Reuters

• Producer Inflation Data Came in Higher Than Forecasted Wall Street Journal

• Investors Plough Record Amounts Into US Farmland Financial Times

• M7 Profits Now Exceed Almost Every Country In the World CNBC

• NYC Rents Are Squeezing Out the Young and Ambitious Bloomberg

• M&A Races Past $400 Billion Mark After Capital One-Discover Deal Yahoo Finance

• Home Depot Sales Drop for Fifth Quarter on Weak Demand Bloomberg

The Deep Insight

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