Equities Sell Off, Then Bounce Back… On Monday, U.S. equities had their worst day since October 2020, but they reversed course on Tuesday and have continued marching higher throughout the week.
What it means— Was that it? Was that the downturn, so that now we can plow back into the equity markets? It seems unlikely. Transports, which tend to lead the broader markets, have been trending lower since May, and it looks like economic growth peaked at about the same time.
Rising trends in key inflation stocks have rolled over. Aluminum: Alcoa (AA) closed weakly Thursday and Friday. Copper: Freeport McMoran (FCX) remains in a downtrend. Steel: U.S. Steel (X) remains in the downtrend that began in May. E.I. duPont (DD) topped in January. Similarly, Dow Holdings (DOW) is down from the May high.
A rising number of stocks are trading below their 50-day moving average, and the advance-decline line shows more stocks trading lower and on heavier volume than are trading higher. There are less than a dozen reasons the major indices are inching higher, and they have names like Amazon, Google, and Microsoft. Now is a great time to be very, very cautious.
For financial advisors, the bond market is always correct. Therefore, inflation will be back in the 1.5% range next year. Bond investors are in denial of the Fed’s continuing intervention to lower long-term interest rates resulting in a manipulated market. (No one will arrest the “Fed.”) In the past month, inflation spiked to a 1982 level of 9.5%. But, who’s watching? For the last two major inflation turning points, the bond market was wrong. Listen carefully. Now is a great time to be very, very cautious.
Housing Starts Jump 6.3% in June, Are Up 29% Over Last Year… Housing starts increased to an annualized rate of 1.64 million units last month, which was welcome news, after starts fell from 1.725 million in March to 1.514 million in April.
What it means— Even with prices climbing quickly and likely buyers saying that now is not a good time to purchase, we still need more homes. Supply and demand remain out of whack, with homes selling quickly at higher than the asking price. Whether building more new homes will bring prices down or perhaps just slow down the rate of increase remains to be seen. It seems unlikely that building fewer homes would help. It’s possible that falling lumber prices will give builders a bit more confidence to start more homes. The lower input price doesn’t mean final home prices will fall, but it gives builders more room to adjust if the market remains soft in the months ahead.
Existing Home Sales Rose 1.4% in June… The median home sale price increased for the first time in five months, and sales improved in every region.
What it means— The median sale price increased to $363,300, the second-highest level on record, and homes sold in just 17 days on average. Inventory increased slightly to a whopping 2.6 months’ supply at the current sales rate. The Fannie Mae Home Purchase Sentiment Index shows that a net -32% of likely home buyers say that now is a good time to buy, the lowest level on record. While home buyers might say that, they’re still elbowing each other out of the way, clamoring for just about every home that comes up for sale. There is some competition from large institutions that are buying large swaths of homes for long-term rental income. However, the institutional buyers are barely half of the market and not responsible by themselves for higher prices. Unless the economy turns markedly lower, this market will hold up.
San Francisco Votes To Buy Several $20,000 Trash Can Prototypes… At present, the public trash cans in San Francisco look like many turn-of-the century cans around the nation. They hold trash, but they’re easy to rummage through, which many people do and then leave behind a mess. City leaders voted to replace the cans and have approved spending about $20,000 apiece on several designs that will be placed around the city to see how they fare. The goal is to encourage people to throw away more trash and do more recycling while discouraging people from digging through the cans. It’s hard to see how the city will succeed.
If the cans are harder to get into than the current version, then vandals are likely to want to break the locks and damage the cans, which will cause more problems. As one commenter noted, the city could buy $30 cans from Home Depot and then spend the rest of the money to hire people to clean up the mess. Or hire more collectors and increase collection times reducing opportunity for dumpster diving. But, that might be too easy. Some proponents responded that the high price is only for the prototypes. When they make the final design, the cost will likely drop to “just” $4,000 or so per can. Cleaning the City by the Sea remains elusive.
Data supplied by HS Dent Research
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