Hey friend,
Charles Green here, Senior Market Analyst here at Traders Agency.
Here’s today Market Pulse 360.
Market Pulse 360 for April 13, 2023
The March CPI was released Wednesday morning, which was cooler than expected and evidenced a continuous downtrend in inflation.
However, housing is remaining stubbornly high due to the effect of the Fed’s record pace in interest rate increases (9 hikes in one year from 0.25% to 4.75%), which left some regional banks on the wrong side of the trade with long-term bonds they have on their books.
These bonds lost value, creating a credit crunch due to their lack of willingness to lend for the construction of new apartments and housing.
This does not improve the supply of housing, keeping prices high and possibly keeping the Fed in play for further rate hikes. Due to recession fears as a result of the credit crunch for builders and stubbornly high housing, recession fears are growing – reducing mortgage rates for home loans while increasing demand and affordability, putting upward pressure on home prices.
The Fed owns this miscalculation by increasing interest rates too fast without anticipating the impact on lending, especially to builders who can help bring down the price of housing with more supply. For this, Powell earns the title of Captain Crunch.
So, what will it be? Recession or “higher for longer” interest rates?
Employment would have to drop off a cliff (unemployment currently only 3.6%) to have a recession, but this would be deflationary, and the Fed would surely stop raising interest rates and reverse course, resolving both questions.
He can quickly lower rates as quickly as he raised them, because now he has the ammo to do so. He was not in position to lower rates a year ago when interest rates were only 0.25%. He can be as aggressive lowering interest rates as he was increasing interest rates if recession becomes a real threat.
We need to be reminded that prior to the pandemic just three years ago, the Fed was more concerned about deflation and negative interest rates than inflation and high interest rates. We are still in a 12-month downtrend in inflation (from 9% one year ago to 5% core today), which is progress and going in the right direction.
So, let’s not forget the opportunity ahead, which is being lost in all of the fear of recession and high inflation for which there is no evidence in sight for this to happen. It’s much more likely there will be no recession and inflation will continue its downtrend.
The economy, markets, and inflation are in a much better position than we were a year ago! The NASDAQ is nearly 30% off its October 2022 low, above the 200-day moving average and will go much higher moving forward!
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A Bit More About Me
My specialty is understanding financial markets and the drivers that influence longer-term direction. I’ve been an active trader focusing primarily on stocks for over 20 years.
I’ve also:
- Been an adjunct finance professor for nearly 20 years
- Worked as a financial consultant with Merrill Lynch managing millions of dollars
- Earned a Master of Science Degree in International Business and Finance from Georgetown University and a Bachelor in Arts Degree in International Studies from George Mason University.
- Spent 14 years as a Marine (I enlisted at age 17) traveling all around the world
My education, work and life experience gives me a broad view of the world, financial markets, and life in general that informs my trading and investment decisions.
My passion is helping others to take advantage of the best market opportunities to achieve their financial goals.
This gives me the greatest satisfaction, and it’s the reason why I continue to teach in the classroom and outside of it today with every activity in which I engage. I believe that I succeed only if clients succeed.
I am a very unlikely success story. And this is only because I believe that anything is possible with the right knowledge, focus, and winning mentality! When you have that, success is just a matter of time.
Charles Green
Senior Market Analyst, Traders Agency
