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February Market Update








Market/Economy Update

Economic news for February centered around the higher-than-expected inflation report we received mid-month. Before this report, it was widely expected that the Federal Reserve would start cutting rates at their May 1st meeting. Since the higher inflation report, consensus has moved to the Fed lowering rates at the June 12th meeting (source). This anticipated delay in cutting rates has caused the market to take a pause and will ensure the next inflation report receives a lot of attention. A stagnating or increasing inflation report next month would reinforce fears of a tougher interest rate environment ahead.


The UK and Japan recently entered a recession, joining Ireland and Finland. The United Kingdom is still dealing with Brexit-induced trade issues, coupled with persistent inflation and low growth. Japan has long been plagued by an aging population which has resulted in decreased consumer expenses. To combat this, the Bank of Japan has kept interest rates artificially low since the mid-90s, which has caused their currency to substantially weaken, specifically over the last 2 years.


Bank Term Funding Program Expiring

Established in the wake of the Silicon Valley Bank collapse in March of 2023, this emergency program was designed to relieve the balance sheet pressure faced by many regional banks due to rising interest rates. This program will stop making new loans effective March 11th, one year after its creation. This hopefully marks the end of the liquidity crisis we saw one year ago.


Banks typically invest in US Treasury bonds or similar instruments to earn interest with customer deposits. In 2022, the Federal Reserve started rapidly raising interest rates, which caused the values of some of these bonds to decline rapidly. When rumors spread of Silicon Valley Bank (and others) being undercapitalized, we had ourselves a game of depositor musical chairs. This emergency program was created to keep the music playing, while time repaired the value of the depositor collateral. It could be argued that this program was very successful and will surely be part of the playbook if banking issues arise in the future.


Housing Resilience

The last four years for the housing market have been quite a ride. During the early years of the pandemic, mortgage rates hit historic lows, and many took advantage by refinancing or purchasing a home. This increased buying power pushed property values higher, at a much faster rate than historical averages. As the Federal Reserve started discussing the mere potential of raising interest rates in January 2022, mortgage rates quickly responded, going from 3% to 7% in 10 months (source). This quick escalation caused many analysts to forecast 20%+ declines in home values. We have had interest rates between 6% and 8% for nearly a year and a half now, and national home values are near all-time highs (source).


What we have seen is the reluctance of 3% mortgage holders to sell and pay 7% for another home. This has caused a somewhat equal decrease in both supply and demand for houses, resulting in fewer transactions. Demand remains strong however, illustrated by multi-decade lows in available inventory, even with 1.4 million homes built last year. Home values have thrived in the face of these challenges. Any decrease in mortgage rates would inevitably increase the amount of transactions, and it is hard to see a case where values could fall substantially.



As always, if you have any questions, please do not hesitate to give us a call.



Citrus Wealth Management


O: 909.312.4412 // F: 909.312.4441

1461 Ford Street, Suite 103, Redlands, CA 92373


Any opinions are those of Citrus Wealth Management and not necessarily those of Raymond James. The information contained in this email does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results.





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