Happy hump day, readers. I'm Phil Rosen, writing to you from Manhattan. I haven't seen any lions or tigers this week, but there's no shortage of bears.
And no wonder — the economy is giving Americans less and less reason for optimism.
Let's take it step-by-step.
- Inflation's out of hand, so the Fed's been forced to be extra aggressive with hiking interest rates.
- That makes home mortgages (and any type of borrowing) less affordable.
- That creates increasing pressure for people's wallets, which then impacts how people feel about the economy.
I hate to say it, but a lot of the chatter across Wall Street says things will get worse before they get better.
Scroll down and buckle up.
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1. The US housing market isn't just slowing down, it's in the early stages of a major correction. With mortgage rates nearing a blistering 7% and home inventories still tight, there's trouble ahead, according to a Tuesday note from Comerica.
The firm's chief economist forecasted that real residential investment will plunge 18% in 2023, and sales of new single-family homes will drop 25%.
Rhys Williams, chief strategist at Spouting Rock, told me yesterday he, too, thinks a correction is likely, given the red-hot rally the market saw when the COVID-19 pandemic hit.
"People don't buy a house for $500,000. They buy a monthly payment that works for their income," Williams said. "So a lot of housing decisions aren't driven by what something's worth, but what people can afford."
And what people can afford today is far different from two years ago, when government stimmy checks flushed consumers with spare cash while mortgages cratered to historic lows.
More and more Americans are getting priced out of the market as rates now rise and inflation eats into peoples' savings, Williams explained, so eventually housing prices have to fall further to match weak demand.
The latest S&P Case-Shiller data showed home prices are already on the decline, and some strategists expect them to tumble another 20%.
But the dismal outlook extends beyond just housing. According to the latest consumer confidence report, Americans are feeling downbeat across the board.
Between stubborn inflation, dwindling pandemic savings, and a looming recession, optimism has dropped.
"It's actually surprising to see consumer confidence stayed as high as it has been," Williams said. "It's one more leg to give the doves at the Fed a reason to pause after they raise rates at the next meeting."
Lynn Franco, senior director of economic indicators at the Conference Board, said in the latest report that consumers' expectations for the near-term remain dismal.
At the next Fed meeting, traders expect policymakers to announce another 75 basis point rate hike, likely resulting in further increases in borrowing costs for everything from mortgages to auto loans.
In Franco's words: "The Expectations Index is still lingering below a reading of 80 — a level associated with recession — suggesting recession risks appear to be rising."
How are you feeling about the trajectory of the economy? What comes next for American consumers? Let me know on Twitter (@philrosenn) or email me (prosen@insider.com).
In other news:
Getty Images / Kiyoshi Ota
2. US tech stock futures fall early Wednesday, after disappointing third-quarter results from Alphabet ignited worries about digital ad sales. Here are the latest market moves.
3. On the docket: Meta, Boeing Co., and Ford Motor Co., all reporting.
4. Goldman Sachs shared an investing playbook to follow right now for a strong portfolio. As a make-or-break earnings season gets underway amid high inflation and a weakening economy, the bank put together it's recommendations for outperformance. See the rundown for yourself.
5. The pound jumped to a six-week high Tuesday and British bond yields moved lower. New Prime Minister Rishi Sunak pledged to "fix mistakes" made by the Truss administration — but added that the UK is facing a profound economic crisis.
6. If oil prices continue to trend higher, it's extremely unlikely that the S&P 500 makes meaningful gains over the next decade, according to Stifel. While one of the firm's top equity strategists expects some upside for stocks in the coming months, there are plenty of risks left for investors with a longer time horizon. Get the full details on a potential "lost decade."
7. A recession is a sure bet now that the Fed took the punch bowl away after the party was already "pissed drunk." Veteran economist David Rosenberg had some choice words this week in likening policymakers to an irresponsible evening host, blaming the Fed for its tardiness in its response to inflation. "It's basically a policy of damn the torpedos, full steam ahead."
8. This investment chief managing $9 billion said buying bonds right now provides a rare "win-win scenario." With rates elevated, traders can reallocate back into bonds, according to Richard Saperstein. Here's his strategy for locking in up to 6% in income — and which assets he likes most.
9. "Run, don't walk" away from index funds. That's according to a hedge fund manager who ran one of the best-performing mutual funds around. He broke down why most funds aren't ready for a two-stage bear market that could last for over a decade.
Markets Insider
10. Saudi Arabia's energy chief slammed nations for using emergency oil reserves to manipulate prices. He said there's more trouble ahead for energy markets in the event of future shortages. President Joe Biden has signed off on a historic use of the US Strategic Petroleum Reserve this year — with another release of 14 million barrels announced this month.
Keep up with the latest markets news throughout your day by checking out The Refresh from Insider, a dynamic audio news brief from the Insider newsroom. Listen here.
Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.
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