The Nasdaq Is Running Higher, But Oil Price Pressure and a Commercial Real Estate Implosion Looms
The Nasdaq ended up another 1.5% continuing its bullish momentum. Traders geared up, maybe even fired up, for a pause in one of the Federal Reserve’s most aggressive tightening campaigns in decades. Apple Inc. (AAPL) hit its all-time high and Tesla Inc. (TSLA) has closed up for its 12th straight day; TSLA is now up over 130% this year. Tech is (back) in the drivers’ seat and Oracle Corp. (ORCL) re-enforced that status as it beat sales estimates citing demand for artificial intelligence (AI) workloads.
Come Wednesday, when the Fed will announce whether it will continue to raise interest rates, we're going to see a big move based on how far the markets have run. Join Garrett Baldwin, Chris Johnson and Shah Gilani as they Trade the Fed on June 14th. If you've never attended one of these free live events before, you're in for a treat; the profits can be amazingly high in just a matter of minutes. Don't miss their recommendations.
Saudi Arabia Could Defend the $70 Level for Brent Crude Oil
It seems like the markets have the OPEC+ strategy dead to rights, and production cuts now just give the market even more reason to position itself on the short site. OPEC+ and Saudi officials have made three attempts to push oil prices higher and since the end of March, yet prices are still down 11% within cents of a 52-week closing low - a sure sign the short-sellers are winning right now.
While oil fell yesterday amid concerns around demand and Goldman Sachs cutting its price forecast, higher prices - which Saudi Arabia is trying desperately to create - are exacerbating recession risk for many major economies and depressing prices at the same time.
When it comes to oil, like Garrett Baldwin says, the price doesn't matter quite so much as the company's position and discipline. Check out his latest piece on how he’s buying and trading oil stocks.
The Banking Crisis Isn’t Over Yet... And Commercial Real Estate Could Go Down with It
It’s not written about in mainstream media, but yesterday morning Morgan Stanley started its U.S. Financials, Payments & CRE conference. We’ve seen plenty of real estate collapses in the news recently; two of the largest hotels in San Francisco just defaulted and Goldman might sell Ireland’s largest mall at a loss.
The CRE market is not looking good, and small and midsized banks are signaling it could get a lot worse. You many think these small banks are not a big issue for the economy, but the fact is that small banks hold almost 70% of commercial real estate loans.
Meanwhile, at the Morgan Stanley conference, banks are not painting a rosy picture. KeyCorp’s (KEY) CEO and CFO pointed to net interest income coming in softer than expected, and revealed clients are demanding higher interest rates on their deposits - and moving elsewhere if they don't get them.
At the same time, smaller banks are facing higher capital requirements imposed by regulators. This one-two punch sent KeyCorp stock down another 4% - this after its price has been cut by 50% since February. Citizens Financial Group Inc. (CFG) hasn't fared much better, as its net charge-offs came in high and deposits down.
All of this is creating a perfect storm that is hitting commercial real estate hard. Work-from-home is still keeping employees out of the office, and corporate profits are hurting. This is having a big impact on paying rents, and, with banks struggling with deposits and tighter lending regulation, they won’t be able to lend at nearly the pace of previous years given the higher rates they're compelled to offer.