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Mosaic Weekly Article 03.24.2023

March 24, 2023

It’s all about the banks still! The issues that arose here in the U.S. a few weeks ago, put a spotlight on the perceived “credit” crunch at several more banks across Europe. After UBS swept in to take control of an ailing Credit Suisse, the focus shifted to Germany as Deutsche Bank’s shares moved lower on Friday. This was a direct response to concerns over the credit quality of their portfolio of loans, similar to the issues raised at Credit Suisse. It is too early to tell if it is related in any way to the failure of Silicon Valley Bank here in the U.S., but it does spell out the overall concerns of how the rapidly rising interest rate environment is impacting everyone on a macro and global level. In the simplest of terms, we continue to move down the path of slower and more measured growth. As credit tightens and reserve requirements by the banking sector increases, lending slows down. When lending and borrowing slow, economies will slow. This may sound scary right now, but this is precisely the recipe for taming inflation.

The Federal Reserve kept to its promise, raising rates by 0.25% at the conclusion of its two-day meeting on Wednesday. Chairman Powell also signaled that they are nearing the end of rate hikes which could breathe some life back into our markets. It is now expected that only one more 0.25% point hike will be needed this year (at least as of today’s betting odds!). He also touched heavily on the recent bank issues and reiterated that the system, overall, remains healthy and liquid. This was all done in an effort to appease the fears and angst that have been rampant as of late. Chairman Powell also mentioned in his post meeting press conference that more needs to be done on the regulation and examination side to see how these types of issues can be avoided in the future. I suspect the same types of discussions are occurring across the European banking sector as well to ease broader fears of more contagion.

A small bright spot over the week was that new home sales spiked +14.5% in February. I’m sure this was a direct result of some easing in the 30-year mortgage rates. But I don’t expect to see a new upward trend starting just yet. As we know, rates overall are still moving higher, but it does show that demand is still there. The housing issues we experienced prior to the last 16 months or so are far from over. There is and remains a housing inventory shortage. In my opinion, any significant pullback in rates will spur further activity. From my perspective, this is all playing out as predicted. Easy money policies for such a long duration have created unintended consequences. The road to get over the proverbial mountain is bumpy and unsure. We have been holding our breath and waiting for the other shoe to drop. I hope these current banking issues are that other shoe. I do believe we are over the “hump”, but the last part of the trip won’t come without some hiccups. My plan is to stay squarely on the road as should yours. Spring is definitely in the air and we should admire the new beauty along the roadside.

Get some fresh air this weekend and enjoy!

https://www.cnbc.com/2023/03/21/february-home-sales-spike.html

https://www.cnbc.com/2023/03/21/stock-market-today-live-updates.html

https://www.cnbc.com/2023/03/23/yellen-says-treasury-is-ready-to-take-additional-actions-if-warranted-to-stabilize-banks.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail

https://www.cnbc.com/2023/03/24/deutsche-bank-shares-slide-8percent-after-a-sudden-spike-in-default-insurance-costs.html´╗┐

Christopher E. WassonCFP®

President

 Mosaic Asset Partners, LLC

                 1122 Kenilworth Drive, Suite 310

                 Towson, MD  21204

                 410.821.0089         fax 410.821.5993

                 MosaicAssetPartners.com  

                 

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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.