David's Spin

Market Update: The Halfway Point

Wow, hard to believe it is almost August, a bit hot and humid these days, and I have been thinking about cooler night air in the mountains as summer is almost over. Kids go back to school in a few weeks, and the Bucs start training camp next week. I am a Gator fan, but FSU and LSU kick off college football in 5 weeks, and I look forward to watching the game and the bands. In the meantime, the women’s world cup soccer tournament is starting this week. The US team is a top 5 team, so if things go well, they can win it all.

In January, I said the stock market was going to be choppy to start the year, mortgage interest rates would slowly come down as we moved through summer, inflation was going to cool, and the economy was strong. Let’s see how we are today.

The stock market was choppy for the first four months of the year and really showed volatility after the two bank failures in March. But at the end of May, Nvidia reported earnings, which were ok, but the forward forecast for earnings from artificial intelligence sent the stock and other mega-cap stocks off to the races. Six months ago, Nvidia was at $175 a share; today, it is at $460. I wish I would have bought a bunch of shares six months ago. Year to date, the S&P 500 is up around 20%, and I am happy with that return.

Inflation has cooled from the spike of 9.1 in June of last year to June of this year, coming in at 3%. The expectation from here is it is going to be hard and take some time to get this number to the Federal Reserve goal of 2%. The Fed likely will keep rates higher and for a longer period of time to finish their inflation fight.

Short-term rates will remain high and should start to slowly come down early next year. The WSJ prime rate, which is the benchmark for what a consumer or business will pay to borrower money, went from 3.25% in March 2022 to 8.0% in one year. The rate will be 8.5% at the end of this month. Predictions are for it to be at 5.5% to 6% by the end of 2024. Long-term rates and mortgage rates did move lower to start the year, but those bank failures stopped the retreat. The federal reserve had to take on 130 billion of treasury and mortgage back securities from those banks and thus slowed their purchase of these instruments in the open market. The reduced demand caused rates to move back higher, and rates are pretty much flat year to date. The forecast is for rates to drift lower slowly as we move forward. If we do go into recession in 2024, we may see mortgage rates move lower at a faster pace.

The economy is still strong, unemployment is still low, and businesses are doing well. Of the S&P 500 companies that have reported earnings for the 2nd quarter so far, 74% of those companies have beaten estimates. I think the Fed will pull off a soft landing, and a mild recession will happen. The Fed is walking a tightrope, and they need to be very careful with what they do going forward. I hope the Fed has one more rate hike, and then they should be done with the rate tightening.

In Florida, there is a down payment assistance program for anyone making less than $130,200 and who has not owned a home in the last three years. The requirement is that you work for a Florida company or for a company that has buildings here in the State. If so, you may qualify for up to 5% of the first mortgage loan amount as DPA. The DPA loan has a 0% interest rate and no monthly payments. The loan is paid off once the home sells or the first mortgage is refinanced. A $400,000 loan can get a $20,000 DPA. As an example, for a $415,000 purchase price with the seller paying 2% towards the cost, the buyer would need less than $2,000 to buy the home. The State funded this program with $100 million on July 1, and we expect the available funding to be around for the next 3 to 4 months.

It has been a challenging few years. Looking back, Covid was just a strange time, and you will recall as a country, we shut down. Then we reopened and spent a ton of money to fix the economic mess that was created. As a result of the massive spending, inflation moved higher, and now everything costs more. Looking forward, I see a bright future; the economy is still in a good place, any recession should be mild, the stock market is doing great, and home values should continue to remain high, as Florida and Tampa are great places to live.

I know it is challenging out there. I am in the mortgage business, and there are not as many opportunities to lend these days. We have done more refinancing lately, even to higher rates, to free up monthly cash flow for families. If I can assist you or anyone you know needing a mortgage, please pass my information on; I appreciate the referrals and the opportunity to help. My cell is 813-230-3433.