The Blackstone Mortgage Trust (NYSE: BXMT) stock price dipped sharply on Wednesday after the US published strong consumer inflation data, pushing borrowing costs sharply higher. The stock dipped to $18.50, which was much lower than last December’s high of $21.94.
All eyes on the Federal ReserveThe Blackstone Mortgage Trust stock has come under intense pressure in the past few months. Most of this sell-off started in December after Carson Block, a well-known short-seller warned about the company.
In a short report, he warned that BXMT could be forced to slash its dividend in the second half of the year. He believes that most of its borrowers will default on their obligations, putting more pressure on the company.
In his report, Block estimated that between 70% and 75% of its US borrowers were unable to cover interest expense from their property cash flows. About $16 billion of interest swaps are set to expire this year at a time when property values are falling.
This situation could intensify now that US inflation has refused to go down. Data released on Wednesday showed that the headline Consumer Price Index (CPI) rose to 3.5% in March while the core CPI moved to 3.8%.
The implication of all this is that the Federal Reserve will not cut interest rates as soon as in June as most economists were expecting. Instead, some analysts, including Larry Summers, believe that the Fed will hike rates this year.
Blackstone Mortgage Trust tends to underperform the market in a period of high-interest rates. This is notable since most of its borrowers are dealing with falling property values and significantly high office vacancy rates. The most recent data shows that office vacancy rates are nearing 20%, a new record.
For starters, Blackstone Mortgage is in the business of lending money to commercial mortgage borrowers. It uses borrowed money to do that and then charges a floating rate, making it highly sensitive to interest rates.
There are signs that BXMT’s expectations for the year are not working as expected. Consider the following statement from Katie Keenan in the last earnings call:
“Moving into 2024, while the path clearly will not be linear, we see an improving backdrop, with inflation receding, rates moving lower and the economy showing stability. It will take time for the tail of legacy credit issues to work through the system and our portfolio, but macro momentum has shifted.”
While the economy is showing stability, inflation is not receding, and there is a risk that interest rates will move higher. This means that the company may continue facing substantial headwinds this year.
BXMT stock price forecast
The daily chart shows that the BXMT share price topped at around $22, where it formed a triple-top pattern whose neckline is at $17.90. It has now plunged below the 50-day and 200-day Exponential Moving Averages (EMA).
Further, the stock has moved below the psychological point at $20 while oscillators are pointing downwards.
Therefore, I suspect that the stock will continue falling in the coming weeks as bears target the crucial support at $17.90.
A break below that level will point to more downside, with the next point to watch being at $14.57, its lowest swing in March 2023. That price is about 21% below the current level, meaning that the 12% yield is quite risky.
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