02/26/24 08:37 AM EST

Small Business Stressed By Interest Rates

Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

Today's bonus chart illustrates the trajectory of bank lending, which, since Q3 of 2022, has fallen from a robust 13.1% year-over-year growth to a mere 1.4% by the close of 2023. This deceleration mirrors the significant downturn experienced from Q2 of 2000 to Q4 of 2001, which, tellingly, culminated in a recession. The question on the horizon is whether our current situation mirrors the past or if unique factors are at play. Presently, we navigate through a period marked by persistently expansive fiscal deficits outpacing the dwindling pace of bank lending, a trend expected to continue indefinitely. The implications of such fiscal expansion now overshadow traditional monetary policy considerations. To illustrate, the Federal deficit concluded 2022 at $1.375 trillion and escalated to $1.69 trillion at the end of 2023.

Taking a step back for a broader perspective, it's a priority to pay attention to the influence of monetary policy on smaller enterprises. Data from the NFIB indicates that small businesses are carrying interest rates above 10% for short-term loans, the highest since 2006. The impact is substantial given that the 33 million small businesses in the U.S. contribute 44.5% of GDP. While market attention is heavily focused on high-profile companies like NVDA, the broader economic realities continue to grow, including the growing divide between the haves and have-nots.

Learn more about the Market Situation Report written by Tier 1 Alpha.