United Homes Group stock plunges after Nikki Haley, directors resign
The Jamie Dimon “cockroach” comment went viral this week, and several regional banks posted larger-than-expected loan-loss reserves, the highest in three years. Zions Bancorp, Banc of California, and Western Alliance all announced sizable provisions for credit losses, which spooked the market and reignited fears of more “cockroaches” lurking in the banking sector.
Fortunately, Bain Capital senior advisor Steve Pagliuca appeared on Bloomberg to reassure investors that private credit remains stable. That’s good news since private equity and private credit are closely intertwined, often financing each other’s transactions. His comments helped calm credit-market nerves and stem the sell-off.
Still, consumers continue to struggle, and the labor market remains weak. That’s precisely why the Fed must cut rates, likely by a full 100 basis points, starting at the end of this month, with additional cuts expected in December and January. The 10-year Treasury yield has already fallen below 4%, and the 2-year is now under 3.5%. When market yields meander lower, the Fed has no choice but to follow. They cannot fight market rates.
Corporate earnings, meanwhile, remain broadly solid. Investors should hang on, let earnings season play out, and allow the market to digest short-term volatility just as it does every quarter.
The federal government shutdown is expected to impede consumer confidence a bit, but since the government tends to impede productivity, the shutdown may not be a significant drag on GDP growth.
What is expected to impede U.S. economic growth and job creation is that the National Federation of Independent Business said this week that its optimism index, a gauge of sentiment among small firms, fell by 2 points in September to 98.8. Economists were expecting small business sentiment to hold steady at 100.8, so the decline in sentiment was a surprise.
Approximately 64% of small business owners reported that supply-chain disruptions were affecting their business to some degree. The index’s uncertainty component rose 7 points in August to 100, which is the fourth-highest reading in more than 51 years. Overall, it appears that small business caution may impede fourth-quarter GDP growth.