What We Are Watching This Week
- ISM Services
- ADP Employment report
- Consumer Credit
- US. Nonfarm payrolls and unemployment rate
Highlights From Last Week
- New Home Sales
- Consumer Confidence
- PCE Index and Core PCE
- ISM Manufacturing
The most significant benchmarks ended the week higher, with the Nasdaq Composite joining the S&P 500 Index and reaching record territory for the first time in over two years. February concluded as a strong month, with the S&P 500 posting its strongest start to the year since 2019, according to The Wall Street Journal. Gains throughout the week were widespread, with an equal-weighted version of the S&P 500 modestly outperforming its market capitalization counterpart. Year-to-date, however, the capitalization-weighted index remained ahead by 4.09 percentage points, reflecting the outperformance of large, technology-oriented growth stocks. The STOXX Europe 600 Index ended nearly unchanged in Europe but remained near record highs. Sticky inflation data prompted investors to reconsider the magnitude and timing of interest rate cuts by the European Central Bank in 2024. Major stock indexes showed mixed performance, with Germany’s DAX rising 1.81% and Italy’s FTSE MIB advancing 0.71%, while France’s CAC 40 Index fell 0.41% and the U.K.’s FTSE 100 Index declined 0.31%.
The TSX posted a modest gain in Canada despite oil surging 4% in the week. Earnings reports from large Canadian banks could have done more to inspire investor confidence. The top 6 banks reported a 6% year-over-year decrease in adjusted earnings despite a 5% year-over-year increase in aggregate adjusted revenue, as indicated by Fitch Ratings. Although the banks generally presented positive results, they increased provisions for bad loans compared to the previous year, reflecting concerns about the economic health of their clients. Canada’s six major banks collectively allocated over $4 billion in loan loss provisions during the first quarter.
On Monday, the U.S. Census Bureau and the Department of Housing and Urban Development reported that January sales of new single-family houses were at a seasonally adjusted annual rate of 661,000. This figure represents a 1.5 percent increase from the revised December rate of 651,000 and a 1.8 percent increase from January 2023. The median sales price for new houses sold in January 2024 was $420,700, with an average sales price of $534,300. The seasonally adjusted estimate of new homes for sale at the end of January was 456,000, indicating an 8.3-month supply at the current sales rate.1
The U.S. Census Bureau released the January advance report on durable goods manufacturers’ shipments, inventories, and orders, revealing a decline in new orders for manufactured durable goods. In January, new orders decreased by $18.0 billion or 6.1 percent to $276.7 billion, following a 0.3 percent decrease in December. Excluding transportation, new orders decreased by 0.3 percent, and excluding defense, new orders decreased by 7.3 percent. The decline was led by transportation equipment, which decreased by $17.4 billion or 16.2 percent to $89.8 billion, marking the third decrease in the last four months. Shipments of manufactured durable goods also decreased in January, down $2.4 billion or 0.9 percent to $279.0 billion, driven by a decline in transportation equipment, which decreased by $2.9 billion or 3.3 percent to $86.3 billion, marking the fourth decrease in the last five months. Unfilled orders for manufactured durable goods increased by $2.4 billion or 0.2 percent to $1,395.5 billion, marking the thirteenth increase over the previous fourteen months. This followed a 1.3 percent increase in December. The rise was primarily driven by transportation equipment, which increased by $3.5 billion or 0.4 percent to $899.8 billion, up thirteen of the last fourteen months. Additionally, inventories of manufactured durable goods increased by $1.2 billion or 0.2 percent to $527.6 billion in January, marking the sixth consecutive monthly increase. Transportation equipment, which has also seen a six-month consecutive increase, drove this rise, increasing by $1.3 billion or 0.8 percent to $169.0 billion. In December, Boeing secured a significant number of contracts but experienced a decline in new deals in January, which aligns with the cyclicality of its business. Carmakers also observed a slight 0.4% decrease in orders, a typical pattern where sales are robust at year-end but taper off at the beginning of a new year.2
Home prices in the 20 largest U.S. metropolitan areas continued to climb, marking an 11th consecutive month of growth and reaching a record high due to a persistent shortage of resale homes for sale. The S&P CoreLogic Case-Shiller 20-city price index rose by 0.2% in December compared to the previous month, with a 6.1% increase over the past year ending in December. Similarly, the national index, a broader measure, also rose by 0.2% in December and was up 5.5% over the past year. Both the 20-city and national index hit all-time highs.
Key details include San Diego posting the largest year-over-year home price gains in December at 8.8%. All 20 major markets reported yearly gains for the first time in 2023. However, home prices rose at a slower pace in Portland, increasing by 0.3%.3 A separate report from the Federal Housing Finance Agency indicated a 0.1% rise in home prices in December compared to the previous month, with a 6.6% increase over the past year. According to the Case-Shiller index, despite interest rates rising to 8% in 2023, which tempered demand, home prices remained resilient. However, some markets are beginning to experience home price declines. With interest rates dropping below 7% in December, demand may be boosted, driving home prices upward again. The ongoing severe shortage of homes for sale is expected to continue pressuring home prices upwards.4
Consumer confidence decreased in February from a six-month high, partially due to U.S. presidential election concerns. The Conference Board reported a decline in the closely watched index from 110.9 in January to 106.7 in February, marking the first decrease in three months. Economists had expected the index to register at 115.1. Consumer confidence is an essential indicator of economic health, signaling whether the economy is improving or worsening. While confidence has improved since late last year due to slowing inflation, it remains below pre-pandemic levels. Despite positive economic indicators such as low unemployment and a booming stock market, the potential impact of the upcoming presidential election between President Biden and Donald Trump remains uncertain. Key details include a downward revision of the January reading for consumer confidence and a decrease in the measure of current economic conditions from 154.9 to 147.2 in February. Additionally, the gauge of consumer sentiment regarding the economy’s prospects dipped to 79.8 from 81.5. Looking ahead, Dana Peterson, chief economist at the Conference Board, noted that the decline in consumer confidence in February interrupted a three-month rise, reflecting persistent uncertainty about the U.S. economy. While consumers are less concerned about food and gas prices, they are more worried about the labor market and the political environment.5
In the week ending February 24th, initial jobless benefit claims increased by 13,000 to 215,000, as the U.S. Labor Department reported. This figure exceeded economists’ expectations, who had forecasted new claims to rise to 210,000. Additionally, the number of Americans already collecting jobless benefits from all programs rose by 45,000 to 1.91 million in the week ending February 17th. Despite the uptick in initial claims, they have fluctuated around low levels. Economists interpret this as indicating some softening in the labor market and anticipate that claims may not remain as low in the coming weeks. However, when looking at the broader picture, the data suggests continued solid economic growth and stable unemployment rates.6
In January, inflation accelerated at its quickest pace in four months, as reported by the Federal Reserve’s preferred PCE gauge, indicating a slower-than-expected return to pre-pandemic price levels. The PCE price index rose by 0.3%, aligning with economists’ forecasts. At the same time, the core rate, excluding food and energy, surged by 0.4%, marking its largest increase in a year and suggesting potential future inflationary pressures. This uptick in inflation corresponds with other reports on consumer and wholesale prices, contributing to the PCE index. Despite a slight decrease in the yearly inflation rate to 2.4%, Fed officials cautioned about achieving stable 2% annual inflation, implying a reluctance to cut interest rates until later in spring or early summer. With benchmark short-term interest rates remaining at a maximum of 5.5%, Wall Street anticipates the first rate cut in June. Meanwhile, consumer spending in the U.S. commenced the new year sluggishly, likely influenced by the aftermath of a robust holiday shopping season. Although household expenditures saw a modest 0.2% increase, partly attributed to adverse weather conditions and a decline in auto sales, incomes surged by 1.0% in January. Despite concerns about mounting debt driving spending increases, consumers remain optimistic about the economy, encouraged by easing inflation, a thriving stock market, and low unemployment rates. The prospect of the Federal Reserve lowering interest rates later in the year further bolsters this optimism, potentially easing financial burdens for borrowers.7
In January, pending home sales dropped by 4.9% compared to the previous month due to rising mortgage rates deterring buyers from the housing market. Released by the National Association of Realtors (NAR) on Thursday, the monthly index of pending home sales reflects signed contracts for existing home sales yet to be closed, serving as a predictor for future existing home sales. This decline marks the largest since August 2023, when sales fell by 5%. Contrary to Wall Street expectations, economists had forecasted a 1.5% increase in pending home sales for January. Transactions also saw a notable 8.8% decrease from the previous year. Mortgage rates began to climb towards 7% at the end of January, signaling the Federal Reserve’s decision against interest rate cuts in March, affecting buyers’ purchasing power. Consequently, even minor rate increases could impact affordability, requiring an annual income of $108,440 to afford a $400,000 home comfortably. As mortgage rates persist above 7% by the end of February, diminishing purchase mortgage applications suggest subdued sales activity in the upcoming months.8
A barometer of business conditions at American manufacturers fell again in February as orders declined and more workers were laid off. Still, executives said they were preparing for expansion later in the year. The Institute for Supply Management’s index of manufacturers dropped to a two-month low of 47.8% in February from 49.1% in the prior month. Economists polled by the Wall Street Journal had predicted an ISM reading of 49.5%. Numbers below 50% are viewed as unfavorable for the industrial side of the economy. Yet the economy has kept growing despite higher interest rates, and the prospect of the Federal Reserve reducing borrowing costs later in the year offers fresh hope of a recovery in manufacturing.9
| WK | Year to Date | |
| Dow | -0.11% | 3.71% |
| S&P500 | 0.95% | 7.70% |
| Nasdaq | 1.74% | 8.42% |
| S&P400 Mid-cap | 1.84% | 4.64% |
| Russell | 2.96% | 2.43% |
| TSX | 0.60% | 2.44% |
| Oil | 4.20% | 11.30% |
1. https://www.census.gov/construction/nrs/pdf/newressales.pdf
2. https://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf
4. https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/HPI_2023Q4.pdf
5. https://www.conference-board.org/topics/consumer-confidence
6. https://www.dol.gov/ui/data.pdf
7. https://www.bea.gov/news/2024/personal-income-and-outlays-january-2024
8. https://www.nar.realtor/newsroom/pending-home-sales-receded-4-9-in-january
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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