Keep Riding the Waves –
With each passing day, it seems like our world gets more and more uncertain. From rumblings of war over in the Middle East to the ups and downs of AI hype, it sure seems like something is afoot.
The markets have been all over the place. Whichever angle you choose to look at things, you’re likely wondering which needle is going to burst the bubble.
Let’s dive into some more indicators that there could be more to this story.
Virtual Insanity
The week ending April 19th was one of the worst for semiconductor stocks since January of 2022. Many AI companies took a significant dip, including everyone’s favorite darling, NVIDIA. While these stocks are known to bounce back after a wild ride, the concern is over why these recent dips may be happening.
Things seem to be fairly quiet on the AI front, with no announcements other than earnings call dates. No executives walking out and no news of mergers. Are shareholders anticipating bad news on the upcoming earnings calls?
On one hand, you could say developments in AI are humming right along. Meta just announced their brand new AI tool, which is supposed to give Google Bard and ChatGPT a run for their money.
On the other hand, tech layoffs still persist. Google just announced plans to layoff thousands of employees within their business operations and finance sectors.
They also plan to send jobs overseas to Ireland, India, and Mexico to further cut costs. Everyone loves American jobs until they become too much of a burden on the bottom line.
Real Estate of Affairs
Commercial real estate is still on a downward spiral. In March, foreclosures were up 6% from February, and 117% up from a year ago. A whopping $929B is expected to mature in 2024.
Yet, we’re still not seeing anyone hit the panic button, at least not at the bank level.
A recent WSJ write up mentions that big banks are avoiding big hits to their earnings, thanks to sizable reserves set aside for future losses. Even though banks see losses flowing through, they’re keeping their office-loan reserve ratios up.
All eyes were on NYCB not too long ago, but it looks like their loan-loss reserves are keeping them afloat, too. Time will tell how deep these buckets really go.
Don’t forget about the smaller banks who may not have buckets at all.
One Long Haul
As factors, another storm we’ve been tracking is the freight recession. It’s been churning for over two years now and it’s monumental in terms of its depth and length.
Freight Waves seems to think we’re now at the bottom of the market and things are potentially on the come up. Here are some indicators:
- Truckload transaction rejections are slightly better than they were a year ago. The higher the rejection rate, the more load options a carrier has. The lower the rate, the fewer load options. Tender rejections currently stand at 3.95%. That’s up from this year’s March low of 3.39% and up significantly from last year’s low of 2.88%.
- Contracted load accepted volumes point towards market growth. As of mid-April, year-over-year contracted volumes are up 9%. Contract accepted volumes are now down 6% compared to the peak of the COVID bull run. There’s a gap between peak volumes and current volumes, but it’s narrowing.
- Carrier Details Net Revocation data shows the increase or decrease in the number of trucking companies in the market. The index has been in the negative since Q4 2022. When capacity continues to leave the market, it can return to balance.
While there’s not much hope for those in the freight market who’ve long depleted their COVID surplus reserves, this could be a glimmer of hope for those still hanging on.
Surviving the Impact
In The Hero with a Thousand Faces, Joseph Campbell says that in order for a hero to complete his adventure, he must survive the impact of the world.
Regardless of your take on what’s really going on in this economy, everyone’s playing field is always leveled by the truth. We have yet to see what will play out in a number of areas, but one thing’s for certain: it’ll all have an impact.
As long as you brace yourself in the form of smart preparation (and a dash of humility), you’ll make it out alive to tell the tale.
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Until next time,