For the first half of 2024, financial markets have been relatively calm and moving up. Interest rates were stable and inflation seemed to be getting more controlled. A smooth highway and an easy drive. The S&P 500 was up over 12% year to date through July, led by the tech sector again.
A funny thing happened on the way to August. Economic data started flashing signs of a recession and rough roads ahead. Consumer debt totaled over $1.1 trillion and credit card delinquencies hit their highest rate in over a decade. Auto loan delinquencies also are climbing. The purchasing Managers Index, which measures the health of the manufacturing sector in the U.S. came in at 48.50. Anything under 50 points to contraction in the manufacturing sector. Jobs created in July came in at 114,000, well below estimates and unemployment crept up to 4.3%. The housing industry is not healthy as high prices and high mortgage rates have pushed a lot of people out of the market. When housing isn’t healthy it affects a lot of other sectors because if people are buying houses, they aren’t buying furniture and appliances to put into those houses.
A not so publicized pothole in the road is commercial real estate and our banks. There is $929 billion in commercial real estate loans that need to be refinanced in 2024. Commercial banks hold 47% of that number. These loans will be refinanced at higher rates than the current loans are at, Vacancy rates in commercial properties are very high in some areas and borrowers may not be able to afford higher rates on their loans, thus increasing default rates on these loans.
Then just to throw in a little geopolitical drama, we have an assassination attempt on the Republican Presidential nominee; our sitting President chooses to drop out of his reelection bid; tensions in the middle east continue to ramp higher to where it now looks almost certain that Iran is going to officially enter into the fray. A full out war in the middle east would not be good for oil prices.
All of this can make even the calmest person feel a bit anxious. When investors feel anxious and uncertain, they generally begin to move to more conservative investments, such as bonds, and that’s what we are seeing. It’s impossible to say how long a sell off may last, or at this point, if we are even in a sell off. But the volatility will remain until we get more definitive direction on these issues.
These are the opinions of Legacy Wealth Management, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice. Copyright ©2024 Mike Berry. All Rights reserved. Commercial copying, duplication or reproduction is prohibited.
