MARKET UPDATE: CONSUMER CONFIDENCE, DURABLE GOODS, NEW HOME SALES, PERSONAL CONSUMPTION EXPENDITURE INDEX (PCE)

What We Are Watching This Week

  • ISM Manufacturing and ISM Services
  • ADP Employment Report
  • US Employment

Highlights From Last Week

  • Consumer Confidence
  • Durable Goods
  • New Home Sales
  • Personal Consumption Expenditure Index (PCE)

Most major U.S. stock indexes gained in a light news week, reflecting a lull in market activity ahead of second-quarter earnings reports. Small-cap companies and information technology stocks led the performance, with growth stocks outpacing value stocks. The index provider FTSE Russell was set to rebalance its Russell indexes after the close on Friday, which likely influenced some of the week’s activity as investors adjusted their positions to track those indexes.

Equities in Canada’s largest market sputtered on the final day of the second fiscal quarter, with resource stocks weighing heavily ahead of the Canada Day long weekend. The TSX Composite Index fell 66.37 points to close at 21,875.79 on Friday. Despite this dip, the index rose by 321 points, or 1.5%, over the week. The Canadian dollar increased by 0.09 cents to 73.09 cents. U.S. Gold stocks experienced the largest declines, while consumer discretionary stocks attempted to balance the market. On the economic front, Statistics Canada reported a 0.3% GDP growth in April, with increases in both goods-producing and services-producing industries.

In local currency terms, the pan-European STOXX Europe 600 Index closed 0.72% lower amid rising political uncertainty in France, with a snap election called by President Emmanuel Macron approaching. This impending event could have a significant impact on the market. Major stock indexes showed mixed results: Germany’s DAX increased by 0.40%, Italy’s FTSE MIB declined by 0.46%, and France’s CAC 40 Index dropped by 1.96%. Meanwhile, the U.K.’s FTSE 100 Index fell by 0.89%.

In June, consumer confidence slightly declined but remained within the same narrow range observed over the past two years. Strong current labor market views helped offset concerns about the future. Dana M. Peterson, Chief Economist at The Conference Board, noted that confidence could weaken if significant labor market weaknesses emerge. Consumers had mixed feelings: they were slightly more optimistic about the present situation, especially regarding the labor market, but less confident about current business conditions. For the second consecutive month, pessimism about future labor market conditions lessened, yet expectations for future income and business conditions declined, impacting the Expectations Index. The decline in confidence from May to June was most noticeable among those aged 35-54, while confidence improved among those under 35 and over 55. There was no clear trend among different income groups. Over a six-month average, confidence was highest among the youngest (under 35) and wealthiest (earning over $100K) consumers. Peterson added that compared to May, consumers were less worried about a recession, but their outlook on their family’s financial situation, both currently and for the next six months, was less positive.1

In May, sales of new U.S. single-family homes fell to a six-month low, influenced by rising mortgage rates, indicating a potential slowdown in the housing market recovery. This decline, the largest in over 1.5 years, was reported by the Commerce Department despite an upward revision in April’s sales data, now showing an increase rather than the previously estimated decline. The supply of new homes reached its highest level in over 16 years. The housing market, heavily impacted by the Federal Reserve’s interest rate hikes since March 2022, had shown signs of recovery starting in the third quarter of last year due to a shortage of previously owned homes, boosting demand for new construction. Economists had predicted new home sales to reach 640,000 units. The sales of new single-family houses were at a seasonally adjusted annual rate of 619,000. This figure is 11.3 percent (±15.5 percent) lower than the revised April rate of 698,000 and 16.5 percent (±16.2 percent) below the May 2023 estimate of 741,000. The median sales price of new houses sold in May 2024 was $417,400, while the average sales price was $520,000. At the end of May, the seasonally adjusted estimate of new houses for sale was 481,000, representing a supply of 9.3 months at the current sales rate.2

For the week ending June 22, the seasonally adjusted initial claims for unemployment benefits were 233,000, a decrease of 6,000 from the previous week’s revised level. The last week’s figure was revised by 1,000, from 238,000 to 239,000. The 4-week moving average rose to 236,000, an increase of 3,000 from the previous week’s revised average of 233,000, which was adjusted by 250 from 232,750. The total number of continued weeks claimed for benefits across all programs for the week ending June 8 was 1,751,102, an increase of 20,053 from the prior week. In the comparable week of 2023, there were 1,697,790 weekly claims filed for benefits in all programs.3

In May, new orders for key U.S.-manufactured capital goods unexpectedly fell, indicating a decline in business spending on equipment in the second quarter due to high borrowing costs. Non-defense capital goods orders, excluding aircraft, a key indicator of business spending plans, dropped by 0.6%. This followed a revised increase of 0.3% in April, previously reported as 0.2%. Economists had anticipated a slight increase of 0.1% for May. Higher interest rates and weakening demand for goods have pressured business spending on equipment. The Institute for Supply Management’s recent survey highlighted businesses’ reluctance to invest due to current monetary policies and other conditions. Core capital goods shipments fell by 0.5% in May, following a 0.4% increase in April. Non-defense capital goods orders also decreased by 0.9%, marking the second consecutive monthly decline, with shipments dropping 1.5% after a 2.1% rise in April. Business spending on equipment contributed marginally to the economy’s 1.4% annualized growth rate in the first quarter. Overall durable goods orders rose by 0.1% in May, following a downwardly revised 0.2% gain in April. Transportation orders increased by 0.6%, driven by a 0.7% rise in motor vehicle orders, while commercial aircraft orders fell by 2.8%. Boeing reported only four aircraft orders in May, down from seven in April, amid ongoing regulatory and customer scrutiny after a January incident involving an emergency landing of a 737 MAX. There was a decline in machinery, primary metals, and electrical equipment orders, while orders for computers and electronic products increased by 0.1%.4

In May, pending home sales in the U.S. declined by 2.1%, as reported by the National Association of Realtors (NAR). The Midwest and South experienced monthly transaction decreases, while the Northeast and West saw increases. Year-over-year, all regions recorded declines. Based on contract signings, the Pending Home Sales Index (PHSI) predicts future home sales fell to 70.8 in May, down 6.6% from the previous year. An index of 100 corresponds to the contract activity level in 2001. NAR Chief Economist Lawrence Yun noted that the market faces rising inventory and decreasing demand, suggesting home price appreciation will likely ease in the coming months. More inventory in a job-creating economy is expected to boost home buying, particularly if mortgage rates decrease. Despite anticipated Federal Reserve rate cuts, NAR predicts mortgage rates will remain above 6% in 2024 and 2025. Existing home sales are forecasted to rise to 4.26 million in 2024 (up from 4.09 million in 2023) to 4.92 million in 2025. Housing starts are expected to increase to 1.382 million in 2024 and 1.492 million in 2025. The median existing home price is projected to reach a record high of $405,300 in 2024 (up from $389,800 in 2023) and $412,000 in 2025. The median new home price is forecasted to rise to $434,100 in 2024 and $441,200 in 2025. Yun explained that while the first half of the year did not meet expectations for home sales, it exceeded expectations for home prices. The second half of 2024 is expected to see moderately lower mortgage rates, higher home sales, and stabilizing home prices.

Regional Breakdown

  • Northeast: The PHSI increased by 1.1% from the previous month to 63.6, a 2.3% decrease from May 2023.
  • Midwest: The index fell by 0.4% to 70.4, down 5.6% from a year ago.
  • South: The PHSI dropped by 5.5% to 83.7, a 10.4% decline from the previous year.
  • West: The index rose by 1.4% to 56.7, a 2.1% decrease from May 2023.5

U.S. monthly inflation was unchanged in May, with service costs rising modestly and goods prices experiencing their largest drop in six months. This situation brings the Federal Reserve closer to possibly cutting interest rates later this year, which could be a positive development for the market. The Commerce Department reported a marginal increase in consumer spending and the slowest advance in underlying prices in six months, raising hopes for a ‘soft landing’ for the economy, where inflation cools without triggering a recession or high unemployment. The personal consumption expenditures (PCE) price index remained flat, following a 0.3% gain in April, marking the first time in six months it was unchanged. Goods prices fell 0.4%, driven by significant declines in recreational goods, vehicles, furnishings, and a 3.4% drop in gasoline prices. Service costs rose 0.2%, mainly due to higher housing, utilities, and healthcare prices. The PCE price index increased 2.6% over the year, down from 2.7% in April, while core inflation rose 2.6%, the smallest advance since March 2021. Consumer spending, which accounts for over two-thirds of U.S. economic activity, increased 0.2%. The Atlanta Fed estimates a 2.2% GDP growth rate for Q2​​.6

WKYear to Date
Dow-0.08%3.79%
S&P500-0.08%14.48%
Nasdaq0.24%18.13%
S&P400 Mid-cap-0.06%5.34%
Russell1.27%1.02%
TSX1.50%4.40%
Oil1.00%13.80%
  1. https://www.conference-board.org/topics/consumer-confidence
  2. https://www.census.gov/construction/nrs/pdf/newressales.pdf
  3. https://www.dol.gov/ui/data.pdf
  4. https://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf
  5. https://www.nar.realtor/newsroom/pending-home-sales-dropped-2-1-in-may#:~:text=WASHINGTON%20(June%2027%2C%202024),all%20U.S.%20regions%20registered%20reductions.
  6. https://www.bea.gov/news/2024/personal-income-and-outlays-may-2024

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).

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The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavours to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.

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