Last week, the stock market experienced a significant decline, resulting in alarming headlines and predictions of an economic downturn. CNBC reported that the Dow had tumbled 1,000 points and the S&P 500 had its worst day since 2022 due to a global market sell-off. The Washington Post also noted this trend with fears of a slowing U.S. economy driving the action.
The media even began questioning if we were headed for another crash like in 2024 according to U.S News Money’s article “Will the Stock Market Crash in 2024?”
However, less than a week later, there seems to be some reversal happening. This shift can be attributed to recent consumer price index data showing an annual increase in inflation of only 2.9%. Kevin Thorpe from Cushman & Wakefield explains that while important, stock markets are not always reliable predictors for both economic and property sectors.
Looking at Reality
In his famous quote from1966 MIT economist Paul Samuelson stated that “the stock market has predicted nine out of five recessions.” Today Thorpe acknowledges that part of this selloff panic was due to concerns about potential slowdowns within our economy – especially after weaker-than-expected job reports came out last July.
During his presentation titled “Behind The Numbers,” Thorpe explained how despite these fears; he believes things are going as expected regarding commercial real estate trends: “The market was overly optimistic about us being able just skirt through this period without seeing any weaknesses percolate into labor markets.”
While it would have been great if we could avoid any issues altogether – it is unrealistic thinking because what we really need is for our economy (and labor markets) slow down slightly rather than crashing entirely which appears likely now based on current events unfolding before us all today!
Thorpe added: “We needed things like slower growth rates or even declines.” He further elaborated by saying such changes would be beneficial because it would reduce the wealth effect, which in turn could lead to less spending. This decrease in spending can help lower prices and inflation rates – giving the Federal Reserve more confidence to start cutting their Effective Federal Fund Rate (EFFR).
What It Means for CRE
Thorpe also explained that reducing EFFR is crucial for a stronger commercial real estate recovery – especially when it comes to capital markets. Lowering this rate will eventually trickle down into lending rates, potentially making overall capital costs cheaper and encouraging investment and development.
However, Thorpe did caution that an economic slowdown won’t be comfortable: “It will get increasingly uncomfortable over time; however, we need this change.” He further added: “Assuming we avoid a recession altogether – then all of these changes should ultimately benefit us within commercial real estate as well since now there’s finally some visibility on how things are going with interest rate cuts.”
