Market Commentary 7/24/20, Market Commentary 7/24/20

Market Commentary 7/24/20

Tech stocks fell in what has been a priced-for-perfection sector as coronavirus cases surge. Tech has led the way as many businesses have used technology for the current stay-at-home economy. However, the huge concentration of value within the FAANG’s (Facebook, Apple, Amazon, Netflix, Google) does create concentration risk. Valuations are for sure stretched in this sector.

June home sales shined and business activity picked up, both welcome signs of better days ahead. Additional stimulus will be needed to sustain the economy until the virus is contained, more effective treatments emerge, or vaccines are available. All of the aforementioned comments continue to weigh on the equity markets. Bond markets continue to trade in a much more somber forecast to equities as the 10-year U.S. Treasury hovers near all-time lows of ~.54%. For the moment, the surge in equities has helped keep consumers and business sentiment alive (better sentiment equals more spending) as the Fed’s do-whatever-is-necessary actions have secured the floor on equity/risk on assets. 

The Fed’s massive liquidity injections have also saved the non-QM mortgage market as lenders and investors look for yield. Mortgage debt is easy to understand and the collateral is real. With paltry AAA and government debt yielding well under 1%, more opaque mortgage originations that can generate yields above 3.500% are appealing. Insignia Mortgage is placing loans with several different types of investors from regional California banks and credit unions to mortgage banks. Bridge loans are also making a comeback with investors eager to put money to work. Government-guaranteed loans are priced at historical lows and with new technology streamlining the process, we can close these types of loan transactions in as few as 30 days.

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