07_31_2020_blog

Market Commentary 7/31/20

It is a twisted tale of two worlds as big tech stocks such as Facebook and Apple surge while unemployment claims nationwide increase over back-to-back weeks. The disconnect between Main Street and Wall Street could not be greater. The issues are compounded by uncertainty over when normalcy will return in the U.S. So many public-facing businesses are struggling (think travel, restaurant, gyms, malls). If you expand that thinking, it’s an even worse conundrum as the business that supports those businesses (think airline parts manufacturers, restaurant suppliers, cleaning companies, retail suppliers) are under great strain. GDP in the second quarter was the worst on record. While everyone expected this number would be awful, the worry now is that with unemployment claims rising the economic rebound could stall. Coronavirus cases are up and there is no clear cut strategy in place to address big issues such as whether schools will reopen, what sort of additional rescue package will Congress agree on, and companies’ actions if the pandemic lasts longer than expected domestically.

However, on the positive side, the U.S. consumer continues to spend money in the e-commerce realm, since brick-and-mortar businesses have been closed. The economy is sure to be impacted in the upcoming quarter as unemployment benefits and bonus COVID-19 benefits taper off. So far, the U.S. government has stepped up in a big way to prevent a major economic depression. It will certainly get more complicated as time goes on, especially with a presidential election looming. 

Interest rates have breached the .60% mark on the 10-year U.S. Treasury. There is no inflation and bond traders are not optimistic about the near-term economic recovery. These ultra-low rates make all types of financing attractive as both corporations and consumers refinance massive amounts of debt. Low-interest rates are also helping the housing market by boosting affordability. Lenders are also seeing a tapering off of forbearances and delinquencies on residential mortgages. Certain sectors of the commercial real estate market remain in deep trouble as retail stores and hospitality businesses have been hit hard by the pandemic. The good news is that Insignia Mortgage’s long-standing relationship with our credit unions, banks, and mortgage banks has proved valuable as we continue to fund almost all loans that we pre-approve.

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