What We Are Watching This Week
- Job Openings
- ADP Employment Report
- Federal Reserve interest rate Decision
- US Employment Report
Highlights From Last Week
- S&P Flash US Services and Manufacturing PMI
- Existing and New Home Sales
- Durable Goods Orders
- Personal Consumption Index (PCE)
- Personal Income and Spending
Stocks had mixed returns for the second week in a row, with small-cap and value shares outperforming large-cap growth stocks. By Thursday, the Nasdaq Composite 100 Index lagged behind the S&P 500 Index and barely outperformed the small-cap Russell 2000 Index for the year—however, large-cap growth shares rebounded by week’s end. The S&P 500 Index experienced a significant drop of over 2% on Wednesday, its largest since February 2023, and the Nasdaq had its worst loss since October 2022. Earnings reports dominated the week, with analysts predicting a 9.8% year-over-year rise in S&P 500 earnings, slightly up from the previous estimate.
Thanks to its higher weighting in financial and energy sectors, the Canadian TSX has performed. At the same time, this rotation should continue despite potential bumps along the way. More broadly, we anticipate a broadening of market leadership across both tech and non-tech sectors in the latter half of the year. The outlook for equity investors remains favorable with positive, albeit cooling, economic growth, easing inflation, and the Bank of Canada likely to continue lowering interest rates. Meanwhile, the U.S. Federal Reserve is expected to start a rate-cutting cycle in the latter half of the year. In this environment, investors can leverage volatility from market or political shifts as opportunities to diversify or expand their investment portfolios.
In Europe, the STOXX Europe 600 Index rose 0.55%, driven by a rally on Friday. Germany’s DAX gained 1.35%, while France’s CAC 40 and Italy’s FTSE MIB fell 0.22% and 1.27%, respectively. The U.K.’s FTSE 100 Index increased by 1.59%. Midweek, European markets were weighed down by earnings in the tech and luxury goods sectors, mainly affected by declines in Tesla and other major U.S. tech stocks. Before the Paris Olympics opening, French President Emmanuel Macron called for a political truce. Despite arson attacks on France’s high-speed rail causing travel disruptions, the CAC 40 Index remained unaffected.
Existing home sales fell for the fourth consecutive month in June, impacted by record-high home prices and 7% mortgage rates. The National Association of Realtors (NAR) reported a 5.4% decline in sales to an annual rate of 3.89 million, the lowest since December 2023 and the slowest June pace since 1999. This figure was below Wall Street’s forecast of 3.95 million. Compared to June 2023, sales also dropped by 5.4%.
Key points include:
- The median home price increased 4.1% year-over-year to $426,900, an all-time high.
- Unsold inventory reached a four-year high, with 1.32 million units, a 4.1-month supply.
- Homes stayed on the market for an average of 22 days, slightly less than the previous month’s 24 days.
- 30% of properties sold above list price, receiving an average of 2.9 offers.
- Sales of homes over $1 million rose by 3.6%.
- All-cash buyers comprised 28% of sales, while first-time buyers accounted for 29%.
- The Midwest experienced the largest regional decline in sales.
The real estate market is experiencing a shift from a seller’s to a buyer’s market, with increasing inventory and longer times on the market. Despite current high prices and rates, the industry anticipates improved conditions if mortgage rates decrease following potential Federal Reserve rate cuts. Changes in real-estate agent practices, effective August 17, are also being closely monitored.1
In July, the S&P Global Flash US PMI Composite Output Index rose to 55.0, its highest since April 2022, indicating continuous output growth for a year and a half. The service sector outperformed manufacturing for the fourth month, with services expanding at the fastest rate since March 2022, while manufacturing declined for the first time since January. Despite declining manufacturing orders, new orders increased overall, driven by solid service sector demand. Future output sentiment fell to a three-month low due to election-related uncertainty and high living costs, though manufacturing sentiment improved. Employment rose modestly for the second month, with manufacturing showing more robust gains. Prices for goods and services increased at the slowest rate since January despite rising input costs. The Manufacturing PMI fell to 49.5, indicating deteriorating conditions due to drops in new orders, production, and inventories, with slower employment growth also impacting the index.2
According to estimates released today by the U.S. Census Bureau and the Department of Housing and Urban Development, sales of new single-family houses in June 2024 were at a seasonally adjusted annual rate of 617,000. This represents a 0.6 percent decrease (±14.6 percent) from the revised May rate of 621,000 and is 7.4 percent lower (±15.2 percent) than the June 2023 estimate of 666,000. The median sales price of new houses sold in June 2024 was $417,300, while the average sales price was $487,200. The seasonally adjusted estimate of new houses for sale at the end of June was 476,000, representing a 9.3-month supply at the current sales rate.3
On Thursday, the Bureau of Economic Analysis reported that, during the second quarter, real GDP growth increased at an annual rate of 2.8%. Increases in consumer spending, private inventory investment, and non-residential fixed investment primarily drove the increase. Consumer spending saw gains in services (notably health care, housing and utilities, and recreation) and goods (including motor vehicles, recreational goods, furnishings, and energy goods). Private inventory investment rose, mainly in wholesale and retail trade, though mining, utilities, and construction declines partially offset this. Non-residential fixed investment increased due to higher equipment and intellectual property spending despite decreased structures. Imports, which negatively impact GDP, increased, particularly in capital goods. Compared to the first quarter, GDP acceleration was due to an upturn in private inventory investment and faster consumer spending, countered by a downturn in residential fixed investment. Current-dollar GDP rose 5.2 percent, reaching $28.63 trillion, while the price index for gross domestic purchases increased 2.3 percent, and the personal consumption expenditures (PCE) price index rose 2.6 percent. Personal income in current dollars grew by $237.6 billion, driven by higher compensation and transfer receipts. Disposable personal income increased by $186.3 billion (3.6 percent), while real disposable income rose by 1.0 percent. Personal savings decreased to $720.5 billion, with the saving rate falling to 3.4 percent.4
Seasonally adjusted initial unemployment claims for the week ending July 20 were 235,000, down 10,000 from the previous week’s revised level of 245,000. The four-week moving average increased slightly to 235,500. The total continued weeks claimed for benefits across all programs for July 6 was 1,970,339, up by 152,145 from the prior week. In comparison, there were 1,913,359 claims in the same week in 2023.5
U.S. prices increased moderately in June as lower goods costs offset rising service costs, suggesting an improving inflation environment. This could allow the Federal Reserve to consider cutting interest rates in September. The Commerce Department reported a slight slowdown in consumer spending. The personal consumption expenditures (PCE) price index rose 0.1% after being flat in May, with goods prices falling 0.2% and services rising 0.2%. Annually, the PCE index climbed 2.5%, the smallest gain in four months. Core PCE inflation, excluding food and energy, rose 0.2% monthly and 2.6% annually. These figures indicate that inflationary pressures are easing, supporting the Fed’s 2% target.6
In July 2024, the Consumer Sentiment Index dropped to 66.4 from 68.2 in June and below last July’s 71.5. The Current Index fell to 62.7 from 65.9 in June, significantly lower than 76.5 last July. The Expectations Index decreased slightly to 68.8 from 69.6 in June but was higher than 68.3 last July. While short-term business condition expectations improved, long-term expectations declined. Sentiment has risen 33% from the June 2022 historic low due to anticipated inflation slowdown, but high prices still negatively impact consumer attitudes, especially among lower-income individuals. Wealthier consumers, buoyed by rising asset values and incomes, showed increased confidence and spending, increasing overall sentiment. Election developments had little effect on sentiment, though the upcoming election influences consumer expectations for the economy. Sentiment dipped for Democrats but remained unchanged for Independents, with future campaign and policy discussions potentially affecting consumer attitudes further.7
WK | Year to Date | |
Dow | 0.75% | 7.69% |
S&P500 | -0.83% | 14.45% |
Nasdaq | -2.08% | 15.63% |
S&P400 Mid-cap | 1.98% | 10.53% |
Russell | 1.98% | 11.49% |
TSX | 0.50% | 8.90% |
Oil | -2.30% | 7.20% |
- https://www.nar.realtor/newsroom/existing-home-sales-slipped-5-4-in-june-median-sales-price-jumps-to-record-high-of-426900
- https://www.pmi.spglobal.com/Public/Home/PressRelease/b8e8431883e142bfbd555271cec331e9
- https://www.census.gov/construction/nrs/pdf/newressales.pdf
- https://www.bea.gov/news/2024/gross-domestic-product-second-quarter-2024-advance-estimate
- https://www.dol.gov/ui/data.pdf
- https://www.bea.gov/news/2024/personal-income-and-outlays-june-2024
- https://news.umich.edu/consumer-sentiment-unchanged-unaffected-by-election-developments/
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. Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.
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.