Last week saw declines in equity prices with the major indices falling sharply. We believe the causes for the week’s decline were varied and span both economic and political issues.
Economically, we believe there are concerns about global growth impacting corporate profits. Increasing trade tensions between the United States and China have raised the risk of a global recession and are leading to uncertainty in the markets. Additionally, bond yields continued to rise, leading to more expensive borrowing costs, which could put pressure on corporate profits.
The Fed’s Senior Loan Officer Survey (SLOS) reveals the mounting pressures of tightening credit as banks increase lending standards for commercial and industrial loans.* This tightening is in stark contrast to 2021, when lenders eased their grip on credit availability amid economic recovery from COVID-19. During 1Q 2023 alone, approximately 44.8% of banks reported restraining access to funds over the previous three months. This latest reading is higher than 4Q 2022’s 39.1% response that credit standards had increased. As cited by the Fed, these constraints have been prompted largely due to heightened levels of uncertainty regarding future prospects or reduced risk tolerances amongst stakeholders involved with loan approval decisions.*
We believe bank decisions to tighten access to credit have been linked to concerns about an increasingly risky outlook and lower tolerance towards riskier investments moving forward. This could create obstacles for companies looking for additional capital or funding opportunities as we progress further into 2023, and we will continue to monitor credit standards and its potential impact on the economy.
Have a great week ahead,
Dennis P. Barba, Jr.
CEO & Managing Partner
Michael P. Finkelstein, CFA
The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. CAR-0223-03979