Today’s stock market tumble was the worst trading day since June 2020. Yesterday, Fed Chair Powell’s comments were straightforward, including “there could be some pain” as the Fed moves to tame inflation with rate hikes. The proverbial “soft landing” in times of fiscal tightening is very elusive. So Powell indicated that he is now hoping for a “softish landing” that will be “a little bumpy, but it’s still a good landing.”
Today’s stock drop stemmed from a capitulation by investors that inflation may seriously affect financial conditions. Earnings reports from Target and Walmart indicated that inflation is affecting corporate America’s “bottom line”. This realization after Powell’s comments yesterday contributed to the sell off.
More from Powell: “Financial conditions have tightened quickly”, he seemed pleased as it will slow down inflation. Stocks are being “marked to market” based on rising interest rates and inflation. The same process is happening in the CRE capital markets as debt costs, leverage levels, risk spreads and equity expectations are in flux. There’s plenty of capital but lenders are in the process of “pricing discovery” as conditions change rapidly. Many lenders indicate that today’s volatility will hopefully lead to conditions settling in a few months. Most certainly some adjusting of asset prices and cap rates will have to occur for transaction volume to increase to last year’s levels. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
