By Dan Furman, Vice President of Strategy — Crest Capital
Can we discuss rates, the economy, and equipment investment for a minute?
There’s this quote about the stock market that resonates with me: “Time in the market beats timing the market.”
The meaning behind the quote is simple: it’s pointless to try and “time” the stock market. If you want to be in, then get in, and don’t worry about outside factors like the economy, interest rates, doom and gloom news, or whatnot. Just ride out whatever it is. Time in beats timing.
I feel this same quote and meaning behind it are useful in the construction industry as well. As someone who has been familiar with equipment financing for almost two decades, I think back to clients who have financed equipment whenever they needed it, and those who didn’t because they were spooked economically. In almost every case, the ones who press forward in any economy are the largest successes, while the ones who are always tentative are not.
So why talk about this in Q1 2024? Well, we’ve just went through a year and a half of rate increases, half a year of “will they or won’t they raise again” speculation, endless predictions of recession, and a contentious presidential election looming.
In other words, it’s the PERFECT opportunity for construction companies, especially newer ones who haven’t been through years of economic waves, to reason away growth. Which, in almost any scenario, would be a mistake.
Let’s go over a few reasons why companies put off acquiring needed new equipment, and my responses to such:
“Rates May Come Down Later” I’ll be blunt here: meaningful rate drops occur over a timeframe measured in years, not weeks and months. If rates fall this year (and that’s a questionable if), they will do so 25 basis points at a time. If we’re really, really lucky, we’ll get perhaps three rate cuts of that magnitude this year.
Even if that happens, the rate you will pay is not going to make a large enough difference to matter, especially if we’re talking about acquiring revenue-producing equipment when you actually need it.