📑 Research Notes for 2022-02-14
This week, we look at the highest CPI figures in 40 years, a flattening yield curve, and the impact of rates of real estate, and vice-versa.
We conduct extensive investment research and share the most interesting content that we come across every week. Here is a curated list of this week’s top observations.
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U.S. CPI Post Largest Annual Gain in 40 Years.
(Reuters)
U.S. consumer prices rose solidly in January, leading to the biggest annual increase in inflation in 40 years, fueling financial markets speculation for a hefty 50 basis points interest rate hike from the Federal Reserve next month. The broad increase in prices reported by the Labor Department on Thursday was led by soaring costs for rents, electricity, and food, and could heap more political pressure on President Joe Biden, whose popularity has been declining amid anxiety over the rising cost of living.
🔗 Source
The Yield Curve is Flattening.
(Pragmatic Capitalism)
The Fed is really dancing with fire this time around. The long end of the curve has continued to flatten into the rate hike expectations. The curve is flattening another 10 bps today. We’re only about 50 bps away from an inverted curve at this point. It’s crazy to think about how strong the economy is by many metrics and how the yield curve is indicating this very late cycle high risk environment.
🔗 Source
The Impact on Housing of Higher Mortgage Rates.
(Calculated Risk)
There are two impacts of less refinance activity: first, homeowners can no longer refinance to lower their mortgage payments, thereby increasing their monthly cash flow, and second, homeowners are less able to use their home as an ATM (cash-out refinance) unless they are willing to accept higher monthly payments. Both of these channels have boosted economic activity during the pandemic.
🔗 Source
How Interest Rates are Affecting Homes and Real Estate.
(ETF.com)
However, with rates on the rise this year, there are signs that this might have the effect of cooling demand. Data released on Feb. 9 showed that mortgage refinance applications had fallen by 7% for the week and were 52% lower than the prior year.Â
🔗 Source
Last Week’s Market Performance Heatmap
(FinViz)
🔗 Source
Curated by Joseph Lu, CFA®
Joseph is the founder and managing director of Conscious Capital Advisors and a CFA® Charterholder.
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