Market Commentary 5/10/2024

Declining Consumer Confidence Suggests Fragile Economy

We’ve perceived the economy as a mixed bag in the past year, diverging from the rosy outlook of many Wall Street economists. Although official employment and GDP figures indicate strength, the reality for many below the middle class suggests otherwise as individuals juggle multiple jobs to make ends meet. Inflation, often cited as a driver of nominal GDP growth, may be masking underlying economic challenges. This is evident in slowing sales for consumer-oriented businesses like McDonald’s.

Conversely, wealthier segments have thrived amid inflation, benefiting from appreciating asset prices and increased spending power. Nonetheless, recent consumer data suggests widespread struggles. Over the past 60 days, our mortgage brokerage and private lending business have witnessed a surge in requests for traditional and bridge financing, reflecting growing financial strain as the COVID stimulus wanes and inflation persists.

Now, the Fed faces a dilemma. Lowering rates risks exacerbating inflation, yet higher rates strain vulnerable citizens reliant on credit cards, mortgages, and loans. While a rate cut may be delayed until after the election, we’re increasingly optimistic about its likelihood, possibly in a significant manner. We foresee a Fed Funds Rate in the 4%-4.5% range by mid-2025, potentially bolstering the mortgage and housing markets and addressing yield curve inversion. Until then, the real estate sector must weather the storm.