MARKET UPDATE: EXISTING HOME SALES AND NEW HOME SALES, S&P FLASH US SERVICES AND MANUFACTURING PMI, DURABLE GOODS ORDERS

What We Are Watching This Week

  • Existing Home Sales and New Home Sales
  • S&P Flash US Services and Manufacturing PMI
  • Durable Goods Orders

Highlights From Last Week

  • Producer Price Index
  • Consumer Price Index
  • US Leading Indicators
  • Retail Sales

The Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite reached record highs during the week, with the Dow surpassing the 40,000 mark for the first time. Concerns about inflation and interest rates ease, benefiting growth stocks due to the lower implied discount on future earnings. A key factor boosting sentiment was the Labor Department’s release of April’s consumer price index (CPI) on Wednesday. Canadian equities edge higher, driven by resource stocks. In Europe, the pan-European STOXX Europe 600 Index rose by 0.42% in local currency terms. Still, it fell short of maintaining the record high achieved earlier in the week. Cautious remarks from European Central Bank (ECB) officials tempered optimism regarding potential monetary policy easing this year. Major European stock indexes showed mixed results: Germany’s DAX decreased by 0.36%, France’s CAC 40 Index fell by 0.63%, while Italy’s FTSE MIB gained 2.14%. In the U.K., the FTSE 100 Index ended the week slightly lower.

Wholesale prices rose more than expected in April, potentially delaying interest rate cuts. The producer price index (PPI) increased by 0.5%, exceeding the 0.3% forecast. March’s PPI was revised from a 0.2% gain to a 0.1% decline. The core PPI, excluding food and energy, rose 0.5%, above the 0.2% estimate. Excluding trade services, it showed a 0.4% increase and a 3.1% rise over 12 months, the highest since April 2023. Year-over-year, wholesale inflation climbed 2.2%, while core PPI inflation reached 2.4%, the highest since August 2023. Services prices, up 0.6%, significantly contributed to the rise, marking the biggest gain since July 2023. Goods prices increased by 0.4%, driven by a 2% rise in the energy index and a 5.4% surge in gasoline prices, while food prices fell 0.7%. Federal Reserve Chair Jerome Powell described the report as “mixed,” noting the higher headline numbers but backward revisions. The Fed remains on hold regarding interest rates, awaiting more evidence of sustained inflation reduction towards their 2% target.1

The cost of consumer goods and services rose by 0.3% in April, driven by higher oil prices and housing costs, keeping inflation elevated in vital economic sectors. This consumer price index (CPI) increase was below the 0.4% forecast by economists The Wall Street Journal surveyed. Wall Street might find some reassurance in the modest 0.3% rise in the core inflation rate, which excludes food and energy prices. This was the smallest increase in four months. Over the past year, the April report indicated that consumer prices rose at a 3.4% annual pace, slightly down from 3.5% the previous month. The core CPI increased by 3.6% year-over-year, down from 3.8% in March, marking the lowest reading since April 2021. Despite the decline, both inflation measures are still well above the Federal Reserve’s 2% annual target. Fed officials have indicated that persistent inflation will likely delay any interest rate cuts until later in the year.2

According to Commerce Department data released Wednesday, retail sales in April remained unchanged from March, as inflation and high interest rates continued to impact consumer spending. This follows a revised 0.6% increase in March and a 0.9% rise in February. In January, sales had declined by 1.1%, partly due to bad weather. Excluding gas and auto sales, retail sales fell by 0.1%. Online sales dropped by 1.2%, while electronics store sales increased by 1.5%. Sales at home furnishings stores decreased by 0.5%. The data provides only a partial view of consumer spending, excluding categories such as travel and lodging. However, in restaurants, the only service category tracked in the monthly retail sales report, sales increased by 0.2% from March.3

According to firms responding to the May 2024 Empire State Manufacturing Survey, business activity continued to decline in New York State. The headline general business conditions index remained relatively unchanged at -15.6. There was a significant drop in new orders, while shipments remained steady. Unfilled orders continued to decrease, delivery times shortened, and inventories showed little change. Labor market conditions remained weak, with employment and hours worked decreasing. The pace of input and selling price increases moderated slightly. Although firms anticipate some improvement in conditions over the next six months, their optimism remained subdued.4

With mortgage rates averaging above 7% for the past four weeks, builder sentiment experienced its first decline since November 2023, according to Freddie Mac. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) reported builder confidence in the market for newly-built single-family homes dropped six points to 45 in May. The rise in mortgage rates has slowed the market, pushing many potential buyers to the sidelines. The lack of progress in reducing inflation has increased long-term interest rates, dampening builder sentiment. Addressing shelter inflation requires constructing more affordable housing. Builders are also concerned about expanding regulatory burdens. For instance, new rules will soon require HUD and USDA to insure mortgages for new single-family homes only if they comply with the 2021 International Energy Conservation Code, increasing construction costs in a market needing more inventory for first-time buyers. In May, 25% of builders reduced home prices to boost sales, ending a four-month decline in this metric. However, the average price reduction remained steady at 6% for the 11th consecutive month. Additionally, the use of sales incentives increased to 59% in May from 57% in April.5

For the week ending May 11, initial claims for seasonally adjusted unemployment benefits decreased by 10,000 to 222,000. The previous week’s level was revised up by 1,000 to 232,000. The 4-week moving average increased by 2,500 to 217,750, with the last week’s average revised by 250 to 215,250. The total number of continued claims for all programs for the week ending April 27 was 1,768,400, down by 10,054 from the previous week. In the comparable week of 2023, there were 1,686,001 weekly claims filed.6

The Conference Board Leading Economic Index (LEI) for the U.S. decreased by 0.6 percent in April 2024 to 101.8, following a 0.3 percent decline in March. Between October 2023 and April 2024, the LEI fell by 1.9 percent, a smaller decrease than the 3.5 percent decline over the previous six months. “Another decline in the U.S. LEI confirms that softer economic conditions lay ahead,” said Justyna Zabinska-La Monica, Senior Manager of Business Cycle Indicators at The Conference Board. April’s decline was driven by a deterioration in consumers’ outlook on business conditions, weaker new orders, a negative yield spread, and a drop in new building permits. Additionally, stock prices contributed negatively for the first time since October last year. While the LEI’s six-month and annual growth rates no longer indicate an impending recession, they still signal significant challenges to growth. Elevated inflation, high interest rates, rising household debt, and depleted pandemic savings are expected to continue weighing on the U.S. economy in 2024.8 

WKYear to Date
Dow1.24%6.14%
S&P5001.54%11.18%
Nasdaq2.11%11.16%
S&P400 Mid-cap0.74%8.44%
Russell1.74%3.39%
TSX0.70%7.20%
Oil2.45%11.56%
  1. https://www.bls.gov/news.release/ppi.nr0.htm
  2. https://www.bls.gov/news.release/cpi.nr0.htm
  3. https://www.census.gov/retail/marts/www/marts_current.pdf
  4. https://www.newyorkfed.org/survey/empire/empiresurvey_overview
  5. https://www.nahb.org/news-and-economics/housing-economics/indices/housing-market-index
  6. https://www.dol.gov/ui/data.pdf
  7. https://www.conference-board.org/topics/us-leading-indicators

Important Information:

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.

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