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.