As we returned to the rainy land of Seattle and I resumed my high-dose vitamin D supplements to cope, I found myself without a strong bias as to where markets may sail to next, like many others.
Both IG and HY spreads have tightened significantly since the “March Madness” in banking. Stocks have drifted higher, with certain sectors showing interesting movements (such as homebuilders making 52-week highs despite mortgage rates being over 6%). Unemployment continues to print well below 4%.
The above are just a few head-scratchers amidst the fear present in markets. Nevertheless, there’s always something to do, and my current interests include consumer and mortgage credit.
On the consumer side, both banks and non-banks have been geared up for an unemployment rate of 5% or higher for almost a year now. Credit has been expanding, but mainly on the back of balance expansions rather than swift new customer additions. However, delinquency trends suggest they may be turning lower, and with each day that passes with sub 4% unemployment rate, the downside scenario for these firms becomes smaller.
On the mortgage side, numerous mortgage originators have exited the market or gone out of business. While it’s difficult for me to understand whether companies like United Wholesale or Rocket are worth buying, there are places to play around the perimeter that offer less torque but more certainty of outcomes on the downside. Select hybrid m-REITs may fall into this bucket.
Apart from that, we’re slowly building dry powder as distributions roll in and have a shopping list at the ready.