(Justin Vaughn, Editor, Options Trading Report)
Markets opened cautiously Thursday as investors and traders were digesting a week filled with much concerning financial news, and the slide began. Stocks began to react with ‘sincerity’ as downward moves were apparent in all sectors, and affected all indices with concern. The S&P 500 was off 3.,8%, with the Dow Jones Industrial Average rocked, off 737 points. The tech-focused Nasdaq Composite fell 4.6%, leading the sliding Indices. ‘Fateful Friday awaits the finishing of the week. Hopefully, some shoring-up will occur as the markets digest the full consequences of the bump in interest rates of the historic three-quarter percent hike. The Fed’s awaited increase in interest rates surprised some as most were expecting a raise of one-half percent, while others were expecting a strong response-and they got one, up three-quarters of a percent to fight this 40-year inflation high, (the last three-quarter increase was 1994). At the onset of the announcement of the larger increase on Wednesday, some investors and traders took a positive note, that the strong ‘tightening’ would ‘slow’ the economy and simmer a bit, however, conditions turned ‘sour’ on Thursday and the downward slide started. Prices dropped and dropped amid fears a ‘real recession’ is lurking. Federal Reserve Chair Jerome Powell suggested that July’s hike might be at least 50 basis points but more likely would be 75 points as inflation has a tight hold. “Clear and convincing evidence of moderating inflation has yet to materialize…Further volatility is likely…” said Julian Emanual, senior managing director at Evercore.
Followup on fall Lumber prices…Home sales are in a downward spiral, falling faster than any consumer sector and the culprit is lumber. Overall, lumber prices are down over 50%, and falling to unheard-of lows. Housing starts and remodeling have taken a terrific fall as the Fed’s tightening is stalling all aspects of building. Shaun Hackett, president of Hackett Financial Advisors stated, “With reduced disposable income and the higher interest rates, it is very hard to see confidence for buying homes at these prices.” Hackett said lumber could be in the $300 to $400 for 1000 board feet and predicts this ‘softness in lumber will last two to three years. After reaching a historic high of $1711 a 1000 board feet in March of 2021, a drastic fall, never before seen has torpedoed lumber prices. Positive prospects for lumber prices to increase are directly tied to the housing and commercial construction markets. Sales of new homes for April fell 30% from December 2021, a trend that looks to continue.
Bitcoin’s free-fall…and cryptocurrency’s struggle to maintain. Friday’s bitcoin price of $20,055.92 is nearly two-thirds lower than November 2021, when it reached $67,802.30, an all-time record high. Ethereum, which seems to mirror bitcoin has been rocked also, settling at $1,095.52 as of Friday. The progressive decline in all cryptocurrencies can be attributed to the collapse of stablicoinTerraUSD, and the Celsius Network rearranging of their system. Also, a factor in the crash of cryptocurrencies is the general condition of the stock market and the Fed’s rate increases to fight inflation.
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RUMBLINGS ON THE STREET
Randall W. Forsyth, writer, UP & DOWN WALL STREET, Barron’s “The University of Michigan’s consumer confidence survey showed the most downbeat sentiment on record, mainly because of soaring prices and despite historically low unemployment.”
Joshua D. H. Sager, Vice President, Loan Officer at Old National Bank, “Commercial lending demand continues to hold strong despite a rising interest rate environment. Commercial C&I (Commercial & Industrial) variable rates are at least 1% over prime, with real estate even higher at roughly 2% over prime. As inflation has reached a 40-year high and the Fed continues to increase rates, banks & other financial institutions continue to expect strong Commercial demand. Conversely, banks are taking necessary steps to ensure loan loss reserves are at appropriate levels for a possible recession storm brewing on the horizon.”
Jan van Eck, CEO, VanEck, Barron’s “Bitcoin will go to half the market cap of gold, or $250,000 a Bitcoin, but that could take decades.”
Gary Gensler, Securities and Exchange Commissioner Chief, Barron’s “It’s not clear…that our current national market system is as fair and competitive as possible for investors. I think we can do better for retail investors.”