Specialty Capital News Flash https://lnkd.in/e97RjnRg
Markets have rolled over in the last 24 hours with a global sell off panic starting in Japan last night. The Nikkei dropped 12% - the biggest point drop in history (worst than Black Monday in 1987), pushing the Japanese index into bear market territory. This was likely the result of the unwinding of the carry trade after the BOJ pushed rates higher by 25 bps after doing nothing for so long. Coupled with potential tensions rising between Israel and Iran, the mega Tech sell off, Buffett's large cash position (selling off half his Apple position), we are coming into a perfect storm. Can things get worse and how should we think about this from a pricing perspective? In our view, we see this as a culmination of a few things that we would like to bring to our reader's attention, mostly focusing on the US market as it relates to our portfolio - Friday's weaker than expected Non Farm Payroll's number (multi-year high of 4.3%) amid a larger than expected slow down in hiring. This was just after reaching a multi decade low of 3.4% in April of last year. While this number is shifting higher faster than expected, the good news is that SICs in construction, leisure and hospitality added jobs last month, which is our wheelhouse. - A more modest FED meeting last week - market participants complained that the FED was moving too slow to raise rates, and now are moving too slow on cutting rates. Futures are pricing in 100bps in rate cuts into year end. - Kamala's rise in the polling numbers from 13% in the beginning of July to 45% by the end of the month has also shook the markets with market participants not too hot with another Democratic ticket. - US pending home sales dropped by 5.7% in July (the largest decline in 9 months). With mortgage rates finally settling lower, we think the housing market may start cooling off. But will lower rates coupled with low inventory, keep prices steady? We have seen some luxury markets (Northeast, South East) come to a stand still which is affecting some of our new home builder clients. We think the carry trade unwinding still has room to go so markets can drift lower as this still isn't the "pending credit event" everyone is waiting to happen. The Middle East conflict is percolating and can blow up any moment, pushing Crude Oil higher which will affect lots of SICs again, and election jitters will continue into year end. We heard that July was a great month relative to the last three industry-wide with higher quality of paper and more customers finally pulling the trigger and moving forward with financing. We saw that on our end as well. From a pricing perspective, we remain to be disciplined on our buy / sell rates especially going out on term with low buy rate transactions. We are ok with losing deals to those with bigger pockets or new comers that need to build up market share. As always, Happy Funding!