Latest news with #economicDownturn
Yahoo
06-07-2025
- Business
- Yahoo
A top UK share to consider buying when the markets melt down?
There are plenty of top-notch UK shares to pick from. But when the stock market inevitably throws another tantrum, knowing which companies are the best buys during a downturn can help both protect a portfolio, but also potentially unlock lucrative gains. There's one stock (which I'll look at in more detail later) that many might see as a meltdown bargain, but I'm not so sure. Generally speaking, there are five sectors that have historically outperformed in times of crisis. The list includes healthcare, consumer staples, utilities, telecommunications, and insurance. And just looking at the FTSE 100, there are around 26 UK shares that operate within these industries. That certainly gives investors choice. But how do these businesses typically outperform when most other companies struggle in adverse economic conditions? There are a few factors at work here. But the most prominent is the fact that regardless of what the economy's doing, their products and services remain essential. After all, people need access to electricity, water, food, medicine, the internet, and financial protection at all times. That translates into steady and predictable cash flows, translating into lower share price volatility and possibly even gains. Let's look at some examples of defensive stocks working their magic. In 2022, higher inflation and interest rates wreaked havoc with the UK economy. And subsequently, medium- and small-cap stocks in the FTSE 250 tumbled by almost 20% during the year. Yet, at the same time, pharma giant AstraZeneca was up by 30%. Aviva held firm with a 10% gain. And Centrica enjoyed a 35% rally. These aren't the only defensive UK shares to reap double-digit gains in the last market wobble. However, not all defensive enterprises proved to be as resilient as expected. BT Group (LSE:BT.A), for example, actually tumbled by 33% — worse than the wider stock market. This wasn't due to a sudden loss of demand from customers. In fact, demand for access to its 5G telecommunication network and fibre optic internet was skyrocketing. The problem was debt. Owning, maintaining, and operating telecommunications infrastructure is an expensive endeavour that's resulted in a substantial pile of loan obligations that still persist today. To management's credit, the group's leverage has started falling to more manageable levels. And it's a similar story with the company's pension deficit, which has also begun shrinking, allowing the share price to climb again. Nevertheless, BT serves as a prime example that even defensive UK shares still have their weak spots. And sometimes, that can prevent them from outperforming during a time of crisis. Similarly, a handful of other defensive businesses also struggled during this period. Therefore, investors can't blindly cycle their money into these types of stocks when the going gets tough. Instead, as always, careful research and due diligence are required to make informed investment decisions, paving the way to superior wealth in the long run. In the case of BT, I think more improvement progress is needed before I'll be tempted to snap up some shares. But if management's turnaround strategy continues to bear fruit, a closer look could be wise in the future. The post A top UK share to consider buying when the markets melt down? appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025
Yahoo
30-06-2025
- Business
- Yahoo
What's next after strong bank stress tests?
Large banks soared through the Federal Reserve's annual stress test this year, demonstrating excess capital positions across the industry. But industry may take the results more as a signal of a positive regulatory direction than as a barometer for banks' financial health. While the test results in the past have been used as a barometer for near-term dividend or share repurchase plans, analysts and bankers expected a favorable turnout this year, said Piper Sandler analyst Scott Siefers. "Everybody won," Siefers said in a Monday interview. "The results overall were just so much better than even optimistic people had really figured they would be." Nearly all of the 22 banks tested this year showed they have capital levels far above their regulatory minimums — and plenty to weather an economic downturn. While exact capital requirements are still in flux, nearly all banks are poised to benefit — or at least not be impeded — by the regulator's latest exam. Banks are expected to release near-term commentary on dividends tomorrow after the market closes, now that they have more clarity on their capital situations. Most will likely hold off on sharing much detail on their other capital plans, like share repurchases or acquisition appetite, until second-quarter earnings presentations next month, Siefers said. The results didn't make as much of a splash this year for the individual companies, or their investors, Siefers said. The results drove minimal market movement on Monday, with the KBW Nasdaq Bank Index rising less than 1%. "I think the market also has appropriately concluded that the stress test results in and of themselves, while I don't want to minimize their importance…the group has so much capital right now that whether or not we got this same result, there was still going to be a lot of access to capital," Siefers said. Results were expected to be stronger this year than last year, in part because banks were starting from a better financial position, including pre-provision net revenue and credit quality. Additionally, the Fed's worst-case scenario in this year's exam was modeled for milder adverse economic conditions than last year's. "It starts to beg the question, 'Have we made the stress test exercise too mild and predictable?'" said Laurent Birade, Moody's Banking Industry Practice Lead. "It's supposed to stress the system…Everybody expected the banks to come through with flying colors. Is that useful?" Even banks with some of the bigger losses in this year's exam saw solid results. Of the banks tested, Capital One Financial took the biggest hit on its massive credit card portfolio in the Fed's worst-case scenario, and saw the second-highest stress capital buffer, per analyst estimates. The regulator found that 23.4% of the bank's credit card loans would be stressed, versus an average of 17% across banks. Still, "while results aren't good, they're good enough," said Truist Securities analyst John McDonald in a bank's likely new regulatory minimum is still under 10%, according to analyst estimates, "well below" Capital One's target of around 11%, and its current level of nearly 14%. The bank's stress capital buffer, projected to be between 4.5% and 4.8%, also still marks a decrease from last year's 5.5%. In May, Capital One closed its acquisition of Discover Financial Services, creating a credit card company behemoth. The combined entity's subprime card business makes up about one-fourth to one-third of the market. Last year's losers also made up for some of those losses during this year's stress test. After a 90-basis point increase to Wells Fargo's stress capital buffer last year, which Siefers called "inexplicable," the bank's buffer appears to have logged one of the largest drops of the group, at about 130 basis points. Still, analysts and investors are more focused on the next regulatory steps, Siefers added. The Fed is currently weighing changes to the stress test process to decrease volatility, along with a proposal to lessen megabanks' capital requirements, among other regulatory changes. Additionally, banks' second-quarter earnings reports, which Birade expects will be strong, will mean more to the industry than the positive stress test results. "In two weeks from now, we won't even talk about this anymore," Birade said.
CNET
30-06-2025
- Business
- CNET
Do Mortgage Rates Drop in a Recession? This Realtor Has a Hot Take
Mortgage rates have typically fallen during recessionary today's news cycle, recession headlines come and go. Amid trade war anxieties, stock market roller-coaster rides and global conflict, no one is hoping for a major economic setback -- except recessions have often created more favorable conditions for mortgage rates. Since the beginning of 2025, average 30-year fixed mortgage rates have been stuck in the high 6.5% to 7% range. Most housing experts, myself included, aren't expecting rates to move much lower by the end of 2025. What would cause mortgage rates to drop? Could buying a home become more affordable in a recession? Would a dramatic shock to the economy send rates down below 3%, as we saw during the pandemic? Not necessarily. Having navigated the real estate market for over two decades, I've witnessed its highs and lows, including the 2008 seismic crash. When my clients are financially ready to buy a home, I tell them that the market is just one piece of the puzzle. There's always an opportunity for certain homebuyers, and the current economic landscape could actually tip the scales in your favor. Let's explore what a recession could mean for mortgage rates, home prices and your journey to homeownership. Do mortgage rates drop in a recession? During an economic downturn, mortgage rates tend to decrease for a few reasons. Market uncertainty can cause investors to seek the stability of government bonds, driving up bond prices and consequently lowering their yields (which are tied to interest rates). Recessions also typically lead to less consumer spending and more job losses, which in turn reduces demand for mortgage loans. This decreased demand can cause lenders to reduce rates. Moreover, the Federal Reserve usually cuts its short-term interest rate during recessionary periods. Lower borrowing rates can help stimulate the economy by encouraging more households to spend and take out loans. Mortgage rates did drop in recent economic depressions, both in 2020 and 2008. But things are messier this time around. There's political volatility and economic uncertainty everywhere, and the Trump administration's policies are changing daily. Even though rates could see some dips, they might also shoot back up. If you're holding out for 4% or 5% mortgage rates, you'll be waiting longer than you'd like. It's going to take far more negative economic news to see rates fall in a big way. Are we currently in a recession? There have been plenty of recession warning signs over the last couple of months. Layoffs are picking up, consumer confidence has dipped, paychecks aren't going as far and retirement accounts are taking hits. While less disposable income and tighter budgets point to a general slowdown in the economy, technically, we're not in a recession. It generally takes two consecutive quarters of negative GDP growth to hit that definition. The official declaration of a recession by the National Bureau of Economic Research usually comes after a period of economic decline has already been ongoing for several months. For a lot of folks, it already feels like we're in the middle of a downturn. Even if the inflation rate isn't going up, the cost of everyday goods and services is high, and budgets are getting hammered. When folks feel the squeeze every time they swipe a card at the grocery store, it prevents them from making huge purchases like a home or from taking on more debt. Will the Federal Reserve cut interest rates? Borrowing costs, credit and debt have been expensive for the last several years, making households and businesses wary about finances. After holding interest rates steady so far this year, the Fed is projected to cut interest rates in September, eventually making financing cheaper. But the central bank has been cautious about shifting policy, especially with tariffs driving prices back up. Rate cuts have been controversial, and the Fed is a bit stuck right now. The economy's losing steam and inflation is cooling, but not fast enough. Also, while lower interest rates will affect the housing market, the Fed doesn't directly control mortgage rates. Mortgage rates move based on many factors, such as the bond market and investor expectations. Even when the Fed starts cutting rates again, don't expect mortgage rates to drop to rock bottom. Many of those expected cuts are already priced into the market. Will home prices fall in a recession? Home prices are a big concern during a recession. Even if home prices are currently showing some signs of cooling off, inventory remains tight on a national scale and sellers still have the upper hand in a lot of regions. Plus, given high construction and labor costs, home prices won't be falling off a cliff anytime soon. Historically, home prices don't fall much during downturns. The 2008 housing crash was the exception, not the rule. What we'll probably see is slower appreciation or small dips in certain markets, especially in areas hit by higher insurance costs, taxes or natural disasters (Florida, Texas and Louisiana come to mind). Is it cheaper to buy a home during a downturn? If you're financially stable, it could be cheaper to buy a home in a recession. You might find better deals, less competition and more negotiating power. But if lending tightens, as it often does during a downturn, getting a loan could get tougher. That's something we're already starting to see with condos and certain types of properties. Don't overlook "the wealth effect." When people feel wealthier, like when their stock portfolio or home value is up, they're more confident in making big purchases. But when economic uncertainty is high, or there's even a threat of job insecurity, households pull back. That negatively affects buyer activity. If someone just lost $20,000 in their 401(k), they're not rushing to get a new mortgage. Is now a good time to buy a home? Your personal financial situation matters more than your interest rate. If you have a solid income stream, strong credit and a long-term plan for paying off a home loan, waiting for lower rates might not be worth it. The best time to buy a home is when it makes sense for you. So don't expect a "perfect time" to take out a mortgage. The green light most people are waiting for doesn't exist. If you prepare, stay informed and work with the right team, you can make a smart move no matter what the economy's doing. Read more: Here's Why You Probably Can't Afford a Home on a $100K Salary Now Playing: 6 Ways to Reduce Your Mortgage Interest Rate by 1% or More 02:31
CNET
28-06-2025
- Business
- CNET
How a Recession Impacts Mortgage Rates, According to This Realtor
Mortgage rates have typically fallen during recessionary headlines come and go in today's news cycle, which is filled with trade war anxieties, stock market roller-coaster rides and global conflict. No one wants to pin their hopes on a major economic setback. But since recessions have often created more favorable conditions for mortgage rates, many of my clients want to know: Will buying a home become more affordable in a recession? Since the beginning of 2025, average 30-year fixed mortgage rates have been stuck in the high 6.5% to 7% range. Most housing experts, myself included, aren't expecting rates to move much lower before the end of this year. What would it take for mortgages to drop? Could a dramatic shock to the economy send rates down below 3%, like we saw during the pandemic? Not necessarily. Having navigated the real estate market for over two decades, I've witnessed its highs and lows, including the 2008 seismic crash. When it comes to buying a home, the market is just one piece of the puzzle, and there's always an opportunity for certain homebuyers. If you're financially ready, the current economic landscape could actually tip the scales in your favor. Let's explore what a recession could mean for mortgage rates, home prices and your journey to homeownership. Do mortgage rates go down in a recession? During an economic downturn, mortgage rates tend to decrease for a few reasons. Market uncertainty can cause investors to seek the stability of government bonds, driving up bond prices and consequently lowering their yields (which are tied to interest rates). Recessions also typically lead to less consumer spending and more job losses, which in turn reduces demand for mortgage loans. This decreased demand can cause lenders to reduce rates. Moreover, the Federal Reserve usually cuts its short-term interest rate during recessionary periods. Lower borrowing rates can help stimulate the economy by encouraging more households to spend and take out loans. Mortgage rates did drop in recent economic depressions, both in 2020 and 2008. But things are messier this time around. There's political volatility and economic uncertainty everywhere, and the Trump administration's policies are changing daily. Even though rates could see some dips, they might also shoot back up. If you're holding out for 4% or 5% mortgage rates, you'll be waiting longer than you'd like. It's going to take far more negative economic news to see rates fall in a big way. Are we in a recession now? There have been plenty of recession warning signs over the last couple of months. Layoffs are picking up, and consumer confidence has dipped. Paychecks aren't going as far, and retirement accounts are taking hits. While less disposable income and tighter budgets point to a general slowdown in the economy, technically, we're not in a recession. It generally takes two consecutive quarters of negative GDP growth to hit that definition. The official declaration of a recession by the National Bureau of Economic Research usually comes after a period of economic decline has already been ongoing for several months. For a lot of folks, it already feels like we're in the middle of a downturn. Even if the inflation rate isn't going up, the cost of everyday goods and services is high, and budgets are getting hammered. When folks feel the squeeze every time they swipe a card at the grocery store, it prevents them from making huge purchases like a home or from taking on more debt. Will the Fed cut interest rates? Borrowing costs, credit and debt have been expensive for the last several years, making households and businesses wary about finances. After holding interest rates steady so far this year, the Fed is projected to cut interest rates in July or September, eventually making financing cheaper. But the central bank has been cautious about shifting policy, especially with tariffs driving prices back up. Rate cuts have been controversial, and the Fed is a bit stuck right now. The economy's losing steam and inflation is cooling, but not fast enough. Also, while lower interest rates will affect the housing market, the Fed doesn't directly control mortgage rates. Mortgage rates move based on many factors, such as the bond market and investor expectations. Even when the Fed starts cutting rates again, don't expect mortgage rates to drop to rock bottom. Many of those expected cuts are already priced into the market. Will home prices go down in a recession? Home prices are a big concern during a recession. Even if home prices are currently showing some signs of cooling off, inventory remains tight on a national scale and sellers still have the upper hand in a lot of regions. Plus, given high construction and labor costs, home prices won't be falling off a cliff anytime soon. Historically, home prices don't fall much during downturns. The 2008 housing crash was the exception, not the rule. What we'll probably see is slower appreciation or small dips in certain markets, especially in areas hit by higher insurance costs, taxes or natural disasters (Florida, Texas and Louisiana come to mind). Is it cheaper to buy a home during a recession? If you're financially stable, it could be cheaper to buy a home in a recession. You might find better deals, less competition and more negotiating power. But if lending tightens, as it often does during a downturn, getting a loan could get tougher. That's something we're already starting to see with condos and certain types of properties. Don't overlook "the wealth effect." When people feel wealthier, like when their stock portfolio or home value is up, they're more confident in making big purchases. But when economic uncertainty is high, or there's even a threat of job insecurity, households pull back. That negatively affects buyer activity. If someone just lost $20,000 in their 401(k), they're not rushing to get a new mortgage. Is now the best time to buy a home? Your personal financial situation matters more than your interest rate. If you have a solid income stream, strong credit and a long-term plan for paying off a home loan, waiting for lower rates might not be worth it. The best time to buy a home is when it makes sense for you. So don't expect a "perfect time" to take out a mortgage. The green light most people are waiting for doesn't exist. If you prepare, stay informed and work with the right team, you can make a smart move no matter what the economy's doing. Read more: Here's Why You Probably Can't Afford a Home on a $100K Salary Watch this: 6 Ways to Reduce Your Mortgage Interest Rate by 1% or More 02:31
Yahoo
27-06-2025
- Business
- Yahoo
Fed says banks resilient in hypothetical downturn, clearing way for capital plans
By Pete Schroeder WASHINGTON (Reuters) -Twenty-two of the largest banks in the U.S. are well-positioned to weather a hypothetical severe economic downturn and continue lending, with firms maintaining robust capital levels even after suffering hundreds of billions of dollars in losses, the Federal Reserve reported on Friday. The results of the U.S. central bank's annual "stress test" of large banks' finances found firms remain resilient in the face of a potential recession, a spike in unemployment, and market turmoil. In aggregate, the test found the banks suffered losses of more than $550 billion in the Fed's scenario, which drove down their capital levels by 1.8%. But even then, firms retained more than twice the minimum level of capital required by regulations. On average, the test found banks retained an average 11.6% ratio of their common equity tier 1 capital, well above the 4.5% minimum required. "Large banks remain well-capitalized and resilient to a range of severe outcomes," Fed Vice Chair for Supervision Michelle Bowman said in a statement. The results of the annual exam are significant for banks as their performance in the exercise sets the "stress capital buffer" they must hold against potential losses. Those buffers typically are finalized in August, according to Fed officials. The relatively clean bill of health from the central bank clears the way for the firms to announce capital plans to shareholders in the coming days, including stock buybacks and dividends. Banks will be able to announce any capital plans as early as Tuesday after U.S. markets close, Fed officials said. Banks generally performed better in the 2025 test than in the 2024 version, in part because the Fed's test this year was less severe. The stress test runs counter to the overall U.S. economy, so a slightly weaker economy leading up to the test resulted in a slightly less vigorous scenario. The 2025 test involved a severe global recession that included a 30% decline in commercial real estate prices and a 33% decline in home prices. The unemployment rate spiked 5.9 percentage points to 10% under the test. The largest global banks all posted stronger results than in 2024, led by JPMorgan Chase, which retained a capital ratio of 14.2% under the test. The nation's six largest banks all retained double-digit capital ratios under the test. The bank that posted the highest capital ratio under the test was Charles Schwab at 32.7%. BMO's U.S. operations posted the lowest capital ratio at 7.8%. STRESS TEST OVERHAUL The stress test results were released during a transitory period for the exercise, which was established following the 2008 financial crisis to probe big banks' resilience. The Fed announced at the end of 2024 that it would be pursuing major changes to how the test is conducted, largely responding to industry complaints that the exercise is opaque and subjective. Among the changes, the Fed proposed in April that the results should be averaged over two years, in response to complaints about volatility. That rule-writing project is still ongoing, but the central bank said on Friday that if the 2025 and 2024 results were averaged, the bank capital decline would increase to 2.3%. If the Fed is able to complete that rule-writing this year, the average results will be used to set the stress capital buffer beginning in the first quarter of 2026, officials said. In addition to averaging results, the Fed has said it also plans to make the scenarios it concocts and the models it uses to produce results available to the public and will be soliciting public feedback on them. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
