· Stocks moved higher this past week in anticipation of and in response to comments from Fed Chair Jerome Powell at the Jackson Hole Economic Symposium sponsored by the Federal Reserve Bank of Kansas City. Two key statements within his speech resonated positively with both the stock and bond markets. 1) “My confidence has grown that inflation is on a sustainable path back to 2 percent” and 2) “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” If Powell and the Fed are correct (and that is a big if) lower interest rates should be felt across the board, especially in housing as that industry historically represents a sizable percentage of economic growth. It is also interesting to note that this change of direction in Fed policy is not in response to a crisis, economic or otherwise, which should result in a more even and predictable pace of its execution.
Several key pieces of Economic Data that were released this past week that may influence the Fed’s decision on interest rates at their upcoming meeting in September, including:
The Census Bureau reported that SALES OF NEW HOMES rose 71,000 during July to a Seasonally Adjusted Annualized Rate (SAAR) of 739,000 from 668,000 during June (5.6% y/y). Sales of New Homes have fallen by 28.32% from their peak of 1.031 million in October 2020 and 42.22% from the peak in July 2005 of 1,279,000 units. According to Haver Analytics, “the median sales price of a new home rose 3.1% (-1.4% y/y) in July to $429,800 (NSA) from $416,700 in June, after falling 1.7% in May. The median sales price remained 9.3% below its October 2022 peak of $460,300. The average sales price of a new home increased 2.6% (1.4% y/y) to $514,800 in July after rising 0.8% to $501,700 in June. The average was 4.9% below its peak of $541,200 in July 2022. These sales prices are not seasonally adjusted.” “The number of unsold new homes on the market fell 1.1% (8.2% y/y) to 462,000 in July following stability in June. It was the lowest level in six months. The seasonally adjusted months’ supply of new homes for sale fell sharply to 7.5 months in July from 8.4 months in June. It remained up from a low of 6.9 months in May 2023. The The median number of months a new home stayed on the market edged higher to 2.4 months in July from 2.2 months in June. The reading remained up from the record low of 1.5 months in both September and October of 2022 but down from a high of 5.1 months in March 2021.” (Source, U.S. Census Bureau)
Sales of Existing Homes rose 1.3% to a Seasonally Adjusted Annualized Rate (SAAR) of 3.95 million units during July from 3.90 million during June. Over the past year Sales of Existing Homes have fallen 2.5% from 4.05 million, but are off their lows of 3.85 million in October 2023. According to the National Association of Realtors (NAR) “total housing inventory registered at the end of July was 1.33 million units, up 0.8% from June and 19.8% from one year ago (1.11 million). Unsold inventory sits at a 4.0-month supply at the current sales pace, down from 4.1 months in June but up from 3.3 months in June 2023.” Further along, the report noted that “the median existing home price for all housing types in July was $422,600, up 4.2% from one year ago ($405,600).” (Source, National Association of Realtors)
The Index of Leading Economic Indicators fell 0.6% during July after slipping 0.2% during June. Over the past six months the LEI has fallen 2.1%. According to Justyna Zabinska-La Monica, Senior Manager, Business Cycles Indicators, at the Conference Board, “the U.S. LEI continues to fall on a month-over-month basis, but the six-month annual growth rate no longer signals a recession ahead. In July, weakness was widespread among on-financial components. A sharp deterioration in new orders, persistently weak consumer expectations of business conditions and softer building permits and hours worked in manufacturing drove the decline, together with the still-negative yield spread. These data continue to suggest headwinds in economic growth going forward.” (Source, The Conference Board)
· According to the Federal Home Loan Mortgage Corporation (FreddieMac), “although mortgage rates have stayed relatively flat over the past couple of weeks, softer incoming economic data suggest rates will gently slope downward through the end of the year. Earlier this month, rates plunged and are now lingering just under 6.5 percent, which has not been enough to motivate potential homebuyers. Rates will likely need to decline another percentage point to generate buyer demand.”
· In what could be one of the most impactful market events in quite some time, this Wednesday after the closing bell, Nvidia (NVDA), the cutting-edge leader in graphic processing units (GPU’s), reports quarterly earnings. The consensus estimate on Wall Street is for earnings of $0.65 per share on revenue of nearly $29 billion. After an early August correction, shares have climbed back to within earshot of their all-time high. Earnings will have a broader impact than just on NVDA as they will most likely answer the question as to whether the rotation to other sectors of the market has staying power.
· The U.S. Bureau of Labor Statistics revised its trailing twelve month estimate of job growth in the United States lower by 818,000 for the period ending March 2024. The revision, the largest in over a decade is part of an annual process, the result of which may provide cover for the Fed to cut rates at its upcoming September monetary policy meeting.
· The value of the U.S. dollar compared a basket of other currencies slid to its lowest level since January as the spread between interest rates on U.S. Treasuries narrowed as compared to foreign sovereigns. No, this is not the end of the dollar nor is it unexpected, but merely a response to other opportunities for global investors seeking income and diversification.
· Investing is not like the Olympic gymnastics or diving. You don’t get extra points for difficulty. Stay correlated to the underlying asset class(es) that align with your longer-term objectives. By the way, style doesn’t count either.
· Companies in the Headlines
o Uber (UBER) and General Motors (GM) announced that they were partnering up to offer driverless rides as early as next year. Details were scarce. However, GM would be utilizing its Cruise autonomous driving division.
o Shares of Target (TGT) rose as revenues at the retailer rose for the first time in five quarters and the company lifted earnings guidance for the next year. CEO Brian attributed the earnings beat to recent price reductions which in turned increased foot and online traffic at their stores and website.
o Alphabet (GOOG), went public twenty years ago this past Monday and according to research from Greg McKenna “if you invested $1,000 in Google at its closing price on August 19, 2004, your shares of Alphabet, now the search giant’s parent, would have been worth $66,521.70 as of Monday’s close.” (Source, Greg McKenna) To us, this illustrates the benefits of thinking long-term when it comes to investing and also how technology has sped up the pace of change and the pace at which companies become dominant and also obsolete.
· Upcoming Economic Reports scheduled to be released this week include the following, on Monday, July Orders for Durable Goods; on Tuesday, August Consumer Confidence; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance, July Wholesale Inventories and the First Revision to Q2 GDP; on Friday, July Personal Income and Spending along with August Consumer Sentiment from the University of Michigan.
· The Q2 Earnings Season is beginning to wind down. However, there remain reports that may turn market sentiment. These include – PDD Holdings (PDD), Trip.com (TCOM), Bank of Montreal (BMO), Royal Bank of Canada (RY), Nvidia (NVDA), Salesforce (CRM), National Grid (NGG), CrowdStrike (CRWD), HP (HPQ), lululemon (LULU), Autodesk (ADSK), Marvell Technology (MRVL) and Dell (DELL).
General Disclosure:“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
