The financial markets seem to hurdle every obstacle placed in front of them. Last week it was a slew of corporate earnings led by Alphabet (GOOGL), GE Vernova (GE) and Tesla (TSLA). This week it is earnings from Microsoft (MSFT), Apple (AAPL), Meta Platforms (META), Mastercard (MA) and Amazon (AMZN), a regularly scheduled two-day meeting of the body that determines monetary policy, the Federal Reserve’s Open Market Committee (FOMC), the July Nonfarm Payroll Report and Unemployment Rate. Trade talks will also be on tap. With the major averages at or near all-time highs a slip up on any of these fronts may be the catalyst for a pullback. However, absent a black swan event we believe these pullbacks will be short-lived.
- “The S&P 500’s dividend yield recently ticked below 1.23%, a level that was previously consistent only for a two-year stretch from mid-1999 to mid-2001.” Of note was the time frame during which this occurred as it marked the end of the tech bubble that consumed investors during the second half of the 1990s. (Sources, Bloomberg, MFS)
- Sales of Existing Homes for the month of June were reported this past week and other than the fact that they sold at a record high of $435,300 was the comment from the Chief Economist of the National Association of Realtors (NAR), Lawrence Yun. “Multiple years of undersupply are driving the record high home price. Home construction continues to lag population growth. This is holding back first-time buyers from entering the market. More supply is needed to increase the share of first-time homebuyers in the coming years even though some markets appear to have a temporary oversupply at the moment.”
- Tesla reported earnings per share of $0.43, a bit below expectations which were for $0.43. Revenue also came in a bit light. According to CEO Elon Musk, “we probably could have a few rough quarters. I am not saying that we will, but we could.” Shares slipped.
- The European Central Bank (ECB) decided to leave its key lending rate unchanged following their regularly scheduled meeting this past week. Despite this decision, unlike the U.S. Federal Reserve, the ECB has cut rates in half from four percent over the past year or so. The Federal Reserve conducts its regularly scheduled two-day meeting this coming week and we believe they will keep interest rates steady but may change their tone within their policy statement released immediately thereafter to one that is more accommodative. That is our baseline as well.
It’s The Economy…”
- The U.S. Census Bureau reported that New Single-Family HomeSales rose 4,000 during June to a Seasonally Adjusted Annualized Rate (SAAR) of 627,000 from 623,000 during May (-6.6% y/y). Sales of New Homes have fallen by 39.19% from their peak of 1.031 million in October 2020 and 50.98% from the peak in July 2005 of 1,279,000 units. The median sales price of a new homefell 4.9% (-2.9% y/y) to $401,800 in June from $422,700 in May. The average sales price of a new homefell 2.1% (1.1% y/y) to $501,000 in June after sliding 0.4% in May. The average price was 7.43% below the high of $541,200 in July 2022. These sales prices are not seasonally adjusted.The number of unsold new homes on the marketrose 1.2% (8.5% y/y) to 511,000 in June, after rising 1.0% during May. The latest was 9.67% above the low of 466,000 in October 2022. The seasonally adjusted months’ supply of new homes for salerose to 9.8 months in May from 9.7 months in May. The latest reading remained above a low of 6.9 months in May 2023. The median number of months a new home stayed on the marketslipped to 2.8 months in June from 2.7 months in May, well above the record low of 1.5 months in both September and October of 2022, but well below a high of 5.1 months in March 2021. (Source, U.S. Census Bureau)
- Initial Claims for Unemployment Benefits for the week ended July 19th fell 4,000 to 217,000 from 221,000, which was unrevised. The four-week rolling average fell 5,000 to 224,500 from 229,500, which also was left unrevised. Continuing claims for the week ended July 12th rose 4,000 to 1,955,000 from 1,951,000, which was revised 5,000 lower. The continuing claims four-week average fell 2,250 to 1,954,000 from 1,956,250. (Source, U.S. Department of Labor)
- Sales of Existing Homesfell 2.7% to a Seasonally Adjusted Annualized Rate (SAAR) of 3.93 million units during June from 4.04 million during May (0.0% y/y). According to the National Association of Realtors (NAR) total housing inventory at the end of May was 1.53 million units, down 0.6% from May (+15.9% y/y). Unsold inventory sits at a 4.7-month supply at the current sales pace, up from 4.6 months in May and 3.8 months in May 2024. The report also noted that the median existing-home price for all housing types in May was a record $435,300, up 2.7% m/m and 2.0% from one year ago ($426,900).”(Source, National Association of Realtors)
- The Conference Board reported that its U.S. Index of Leading Economic Indicatorsslid 0.3% during June, after remaining unchanged during May. The US LEI fell 2.8%over the trailing six months. “The US LEI fell further in June. For a second month in a row, the stock price rally was the main support of the LEI. But this was not enough to offset still very low consumer expectations, weak new orders in manufacturing, and a third consecutive month of rising initial claims for unemployment insurance,” this according to Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at the Conference Board. (Source, The Conference Board)
Economic Reports scheduled to be released this week include the following: on Tuesday, June Wholesale Inventories, July Consumer Confidence and the June Job Openings and Labor Turnover Survey (JOLTS); on Wednesday, the Initial Estimate of Second Quarter Gross Domestic Product (GDP); on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits and June Personal Income and Spending; and, on Friday the July Nonfarm Payroll Report, July Unemployment Rate and July Construction Spending.
A slew of companies are scheduled to report Q2 Earnings Season this week, includingVisa (V), Procter & Gamble (PG), UnitedHealth (UNH), AstraZeneca (AZN), Merck (MRK), Booking Holdings (BKNG), Meta Platforms (META), Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Mastercard (MA), AbbVie (ABBV), Chevron (CVX) and Exxon