Sales of big-ticket items like cars and houses are certainly pressured by the current economic conditions. Sales of new cars remain -17% pre-covid levels even as supply comes online at the same time used car sales are falling off the cliff. Consumers seem to be allocating financial resources that used to pay for housing & transportation to necessities like food & affordable luxuries for the time being.
December’s preliminary retail sales release spooked investors who smell a recession. Normally, this would be a boost to stocks because of expectations that the Fed might start to adopt a more dovish stance. However, this represents the first time that investors have finally come to believe that Powell & company intend to keep interest rates inflated, even if hell freezes over.
Lowe’s fiscal 3Q23 sales were healthy (domestic comp sales increased +3% y/y) as consumers tapped their savings and disposable income.
Hopefully, the Fed will reconsider its rate hikes (which are incapable of curtailing supply-driven inflation) by taking pity on the federal government which is starting to share in the pain of indebted Americans everywhere.
90% of Lowe’s customers have existing fixed interest rate mortgages (sub 3%) & are immune to Fed rate hikes.
The Federal Funds Rate is the short-term interest rate at which depository institutions lend overnight to each other within the Federal Reserve system.
Total home sales declined -11% y/y during 2Q22 as the 30-year fixed rate mortgage increased from 3% during 2Q21 to 5.2% in 2Q22.
• Restaurant stocks on average are down -40% from their 52-week high, trading at ~15x EV/EBITDA, as investors continue to struggle to assess the impact of out-of-control inflation on consumers’ ability to maintain their dine-out habits.
• Given current inflation rates, interest rates should be much higher.
• The spread between cap rates and the 10-yr. approached the record low set in April as real estate has become the most attractive asset class to NNN investors.
Higher interest rates are not bad for everything, particularly the $USD.
How would the return of normal interest rates affect the US Government?
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