Yields Dip As Ukraine & Fed Policy Weigh Down On Market
Ukraine-Russia tensions, inflation worries, a more restrictive Fed, and a slowing economy weighed heavily on the equity markets this week. Bond yields surged and fell in very volatile trading, while credit spreads widened. These are all signs that the economy may be headed for tougher times. Although the Ukrainian conflict is scary, the bigger concern is the expectation of rising interest rates that affect consumer confidence, with the calculus on discounting long-duration equities (think unprofitable tech) and housing. While housing now has a natural floor due to such limited supply, other asset classes such as tech have been crushed by changing opinions on risk. As the stock market is viewed as a store of wealth, consumer spending could be discouraged if equity losses continue to mount.
It seems as if the Fed has lost control of inflation as members of the FOMC appear on television to express their ideas on how inflation should be tackled. Aggressive rate-hiking has been discussed and has played a big role in increased volatility in global markets. There is now talk amongst analysts of up to 7 hikes next year. This may be too aggressive, especially as the equity market cools off. However, the more conservative estimate of 5 hikes seems more likely. The increasingly important bond market has not been watched very closely over the last two years, due to the ultra-accommodative Fed policy. The 10-year Treasury yield, as well as the slope of the yield curve, are now being closely watched. The flatter the yield curve, the less of a possibility of additional rate hikes.
Mortgage rates are very volatile and Insignia Mortgage team members have a big advantage over bank loan officers at the moment. Our mortgage brokers have access to many different products and lenders. Our community-based banks and credit unions are holding the line on interest rates as they are focused on keeping production volume healthy rather than raising interest rates.
