Podcast Summary
Promising results for Eli Lilly's weight loss therapy Tirzepatide in phase three trials: Eli Lilly's Tirzepatide shows promise in treating obesity and obstructive sleep apnea, potentially impacting companies in the sleep apnea industry and broader healthcare sector.
Eli Lilly's weight loss therapy Tirzepatide showed promising results in phase three trials for obesity and obstructive sleep apnea, potentially impacting companies like ResMed, Inspire Medical Systems, Philips, and Jazz Pharmaceuticals. Meanwhile, the market is adjusting to the new Fed funds rate landscape, with the implied floor for the funds rate being in the 4% area. Despite this, BMO strategist Brian Belsky suggests that higher interest rates may not be detrimental to stock investors, as some of the strongest S&P 500 performance periods have occurred during rising or higher interest rate environments.
Market transition causing volatility and uncertainty: Despite some positive earnings reports and collaborations, the market is experiencing volatility and uncertainty due to the transition to a more normal rate structure, causing some funds to underperform and investors to pull out.
The market is facing a challenging transition from easy money investing to a more normal rate structure, leading to potential volatility and uncertainty in the coming months. This was highlighted by Abbott Labs' better-than-expected Q1 earnings but narrowed sales growth guidance, as well as Travelers Companies' earnings miss due to catastrophe losses. Elsewhere, Cathie Wood's ARK Innovation ETF fell below its 200-day moving average for the first time since late 2023, and investors pulled $1.4 billion from the fund this year. Meanwhile, Walmart announced a new collaboration with the Jessica Simpson brand, and the retail sector continues to be a bright spot. Despite these developments, the broader market remains in a downtrend, with many ETFs trading below their 200-day moving averages.
Impact of Rising Rates on Housing Finance Industry: Rising interest rates are affecting MSR values positively but decreasing refinancing levels, leading to increased overall operating margins. However, if rates fall below 4.5%, origination volumes can still be maintained. Above 4.5% and volatile conditions put pressure on single multifamily origination volumes and stress on credit metrics.
The current rising interest rates are having a significant impact on the housing finance industry, particularly on mortgage servicing rights (MSR) and origination volumes. According to Wedbush, the positive effect of higher rates on MSR values is being offset by lower refinancing levels, leading to decreased amortization costs and increased overall operating margins. However, if the US 10-year treasury yield falls below 4.5%, most housing finance companies covered by Wedbush can still maintain acceptable levels of origination volumes and gain margins. On the other hand, with the 10-year above 4.5% and volatile rate conditions, there is expected pressure on single multifamily origination volumes and stress on multifamily credit metrics. For originators like Guild Holdings, Rocket Companies, and UWM Holdings, climbing rates are likely to slow the purchase market and refi market, resulting in lower gain on sales margins. Overall, the housing finance industry is facing challenges due to the current interest rate environment, and companies will need to adapt to these changing conditions.