The haves and the have nots

Wow, what an action packed week. Is it 4pm yet?

There is a world outside of the incredible $270b market cap gain in two stocks today and that outside world is still very much a mixed bag. 

I guess Jay Powell's press conference wasn't enough on Wednesday in his conveyance of information and now he wants to talk to 'the people.' I doubt he says anything new but if I were to guess, I'd think he would be using this venue as a way to push back on the Congress people who want him to cut interest rates aggressively especially because of the unaffordability of homes, even though zero rates and MBS buying was the main reason why home prices rose 40% in 2 years. He'll mention how important it is to keep inflation down and that stable prices is the foundation of healthy economic growth. While Jay said they likely won't cut rates in March, rate cut odds in the fed funds futures market are still at 40%. 

New York Community Bank wasn't the only bank this week that announced their pain from US commercial real estate (along with their new capital ratio challenges). In case you didn't see yesterday it ensnared a Japanese bank, Aozora Bank. They announced a surprising loss Thursday because of their exposure to US real estate. "Due to higher US interest rates and a shift to remote work accelerated by Covid-19, the US office market continues to face adverse conditions combined with extremely low liquidity." The stock is down 34% in the past 2 days. Understand here that the problem with US commercial real estate is not just office, the higher rate environment negatively impacts any landlord that has debt coming due and if the rate on its existing loan was priced pre 2022. There is much more pain to come when one's cost of capital goes from 3% to 8%. 

US auto sales in January were well below expectations coming in at 15mm at a SAAR. The estimate was 15.7mm, the December print was 15.83mm and it compares with the January 2023 level of 15.74mm. It's also the least since March 2023 Wards Intelligence said "Causes for the month's weaker results could have included some payback for December's surge. However, affordability and inventory likely played roles, as availability remains well below historically normal levels for a market running at a 15 million plus annualized rate, and at the same time interest rates for financing purchases are at long time highs, the mix on dealer lots is weighted toward higher priced vehicles." You've heard me say before that the auto industry was the last industry standing in manufacturing as dealer lots got restocked, which seems to have run its course and now we have lessening end demand.