MARKET UPDATE: US CONSUMER CONFIDENCE, PERSONAL CONSUMPTION EXPENDITURES (PCE) & CORE PCE, PERSONAL INCOME AND SPENDING

What We Are Watching This Week

• US Consumer Confidence
• Personal Consumption Expenditures (PCE) & Core PCE
• Personal Income and spending

Highlights From Last Week

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

Over the past week, the major stock indexes showed varied results. The Dow Jones Industrial Average experienced its largest weekly loss (-2.33%) since early April, while the Nasdaq Composite reached record highs. The S&P 500 Index remained primarily flat, and small-cap stocks declined. An equal-weighted version of the S&P 500 Index underperformed its market-weighted counterpart by 1.27 percentage points. The market was set to close the following Monday for Memorial Day. A critical factor in the market’s divergence was the performance of NVIDIA, an artificial intelligence chipmaker that is now the third-largest company in the S&P 500 by market capitalization. NVIDIA’s first-quarter earnings, reported on Wednesday, exceeded expectations, causing its shares to rise 9.3% on Thursday and adding about USD 220 billion to its market cap. NVIDIA significantly impacted the S&P 500, contributing to 37% of its earnings-per-share gains over the past 12 months and 25% of its 11.3% year-to-date gain. Despite NVIDIA’s success, the broader market did not see gains. Nearly 90% of S&P 500 stocks fell on Thursday, driven by data suggesting a growth rebound in May, which led to speculation that the Federal Reserve might delay cutting interest rates.

On Friday, the Toronto Stock Exchange (TSX) rose, driven by gains in resource and tech stocks. The TSX increased by 120.08 points to close at 22,320.87. Despite this gain, the TSX fell by 144 points, or 0.64%, over the shortened week, as Canadian markets were closed Monday for Victoria Day. The Canadian dollar also rose, gaining 0.39 cents to reach 73.21 cents U.S. For the week, the TSX experienced its biggest drop since mid-April, falling 141 points, or 0.6%, since the previous Friday. In economic news, retail sales in Canada decreased by 0.2% to $66.4 billion in March. Due to declining inflation and weak economic growth, traders now anticipate a 60% probability that the Bank of Canada will cut interest rates at its June 5 monetary policy meeting.

In local currency terms, the pan-European STOXX Europe 600 Index fell by 0.45% due to emerging questions about the pace of potential interest rate cuts this year. Major stock indexes showed mixed results. Italy’s FTSE MIB dropped 2.57%, while France’s CAC 40 Index decreased by 0.89%. Germany’s DAX remained primarily unchanged. The U.K.’s FTSE 100 Index declined by 1.22%.

In April, sales of previously owned homes fell by 1.9% from March to an annualized rate of 4.14 million units, contrary to forecasts of a slight gain. Sales were also down 1.9% compared to April 2023. These figures are based on closings from contracts likely signed in February and March. Mortgage rates, which jumped at the start of February and held around 7% for two months before rising further in April, significantly impacted these sales. Lawrence Yun, chief economist for the National Association of Realtors, highlighted that the 300 basis point increase from pre-COVID rates has introduced new challenges, limiting home sales. Total housing inventory at the end of April was 1.21 million units, up 9% month-over-month and 16% year-over-year, yet it remains just a 3.5-month supply at the current sales pace. A balanced market is typically a six-month supply. Notably, the supply of homes over $1 million increased by 34% year-over-year, making that segment the most active. Conversely, sales of homes priced below $100,000 fell by 7.1% year-over-year, while sales of homes priced over $1 million surged by 40%. Tight supply kept prices high. The median price of an existing home sold in April reached $407,600, a 5.7% increase year-over-year and a record high for April. Due to solid demand, 27% of homes sold above the list price. Yun suggested that while record-high prices benefit homeowners, the pace of price increases should slow as more inventory becomes available. First-time buyers made up 33% of April sales, up from 29% the previous year. The share of all-cash transactions remained high at 28%.

Regionally:

• Northeast: Sales fell 4% month-over-month and year-over-year. The median price was $458,500, up 8.5% year-over-year.
• Midwest: Sales dropped 1% month over month and year over year. The median price was $303,600, up 6% year over year.
• South: Sales decreased 1.6% month over month and 3.1% year over year. The median price was $366,200, up 3.7% year over year.
• West: Sales were down 2.6% month-over-month but increased 1.3% year-over-year. The median price was $629,600, up 9.3% year-over-year.¹

In May, US business activity saw significant acceleration, reaching its highest growth rate in over two years, according to provisional PMI survey data from S&P Global. The Flash US PMI Composite Output Index rose to 54.4 from 51.3 in April, marking a 25-month high. The Flash U.S. Services Business Activity Index increased to 54.8 from 51.3, a 12-month high. The Flash U.S. Manufacturing Output Index climbed to 52.4 from 51.1, while the Flash U.S. Manufacturing PMI rose to 50.9 from 50.0, both reaching 2-month highs. The service sector led this upturn with the largest output rise in a year, and manufacturing also experienced stronger growth. Despite continued reports of lower employment, the rate of job losses decreased due to improved business confidence and higher-order book intakes. Both input costs and output prices increased faster, with manufacturing emerging as the primary source of price growth over the past two months. Nevertheless, the overall rate of selling price inflation remained below the average seen over the past year.²

On Thursday, the U.S. Department of Labor reported for the week ending May 18, the initial claims for seasonally adjusted unemployment benefits were 215,000, down by 8,000 from the previous week’s revised level of 223,000. The 4-week moving average rose by 1,750 to 219,750, with the last week’s average revised to 218,000 from 217,750. The total number of continued claims for benefits across all programs for the week ending May 4 was 1,710,931, a decrease of 57,482 from the previous week. In the same week in 2023, there were 1,637,970 weekly claims filed for benefits.³

In April, sales of newly built single-family homes decreased by 4.7% to a seasonally adjusted annual rate of 634,000, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This represents a 7.7% decline from a year earlier. Carl Harris, chairman of the National Association of Home Builders (NAHB), attributed the decline to mortgage rates remaining above 7%, causing potential buyers to hesitate. However, Harris expects mortgage rates to fall below 7% soon, which, along with a shortage of existing home inventory, should boost new home sales during the crucial spring/summer season. Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis, noted that the lack of resale homes and a softening median new home price should drive buyers towards new construction. The inventory of new single-family homes in April stood at 480,000, up 12.1% from a year ago, representing a 9.1-month supply at the current building pace. The ready-to-occupy inventory was 97,000 homes in April, up 42.6% from the previous year but only 20% of total inventory. The median sale price for new homes in April was $433,500, a 1.4% decrease from March but a 3.9% increase from the previous year. Regionally, year-to-date new home sales increased by 22.4% in the Northeast, 22.3% in the Midwest, and 14.0% in the West, while sales decreased by 10.5% in the South.⁴

In March, Canadian retail sales decreased by 0.2% to $66.4 billion, as shoppers spent less on furniture, home furnishings, electronics, and appliances, according to Statistics Canada. Despite this decline, an early estimate for April suggested a 0.7% increase in retail sales. Retail sales ended the first quarter weakly, reflecting consumer caution due to higher interest rates on renewed mortgages. This trend supports the possibility of the Bank of Canada reducing interest rates in June. The expected rise in April sales would be partially due to a surge in gasoline prices, with actual sales volumes likely increasing by about half the estimated pace, effectively reversing the March decline. The Bank of Canada’s next interest rate decision is scheduled for June 5. Depending on the economic data, Governor Tiff Macklem indicated that a rate cut is possible. In March, retail sales declined in seven of nine subsectors. Core retail sales, which exclude gasoline stations, fuel vendors, and motor vehicle and parts dealers, fell by 0.6%. The only core retail subsector to see an increase was building material and garden equipment and supplies dealers, which reported a 1.3% rise in sales.⁵

In April 2024, new orders for manufactured durable goods in the United States increased by 0.7% month-over-month, following a downwardly revised 0.8% rise in March, according to the latest report from the U.S. Census Bureau. This defied market expectations of a 0.8% decrease and marked the third consecutive monthly increase in durable goods orders. The growth was mainly driven by strong demand for transportation equipment, which rose 1.2% compared to 2.5% in March. Additionally, demand increased for computers and electronic products (0.6% vs 0.4%), fabricated metal products (0.3% vs -0.3%), machinery (0.4% vs -0.3%), and electrical equipment, appliances, and components (0.9% vs -1.9%). Orders for non-defense capital goods, excluding aircraft, a key indicator of business investment plans, also rose by 0.3% in April, recovering from a 0.1% decline in March.⁶

1. https://www.nar.realtor/newsroom/in-the-news/home-sales-slipped-unexpectedly-in-april-despite-big-gains-in-supply-cnbc
2. https://www.pmi.spglobal.com/Public/Home/PressRelease/e3fafd17513343c48327da2296a67870
3. https://www.dol.gov/ui/data.pdf
4. https://www.census.gov/construction/nrs/pdf/newressales.pdf
5. https://www150.statcan.gc.ca/n1/daily-quotidien/240524/dq240524a-eng.htm?indid=3660-1&indgeo=0
6. https://www.census.gov/manufacturing/m3/adv/current/index.html

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.