Stocks Advanced this week on Debt Ceiling Talks and Regional Bank Stability… President Biden cut his trip to Asia short to attend the debt ceiling talks, and some regional banks reported expanded deposits.
What it means— As investors, we have the attention span of gnats. The debt ceiling is a made-up crisis. When it’s over, we’ll still have the rest of our economic situation to deal with, just like we did before this clown show started, which brings up regional banks. This slow-motion train wreck is still a train wreck. Commercial real estate valuations will not come back to previous levels. When the music stops, many institutions won’t have seats. Be careful in the equity markets, as we’re near the top of the recent range.
April Retail Sales Up 0.4%, Below 0.8% Estimate… Motor vehicle and parts sales rose 0.4%, while gasoline sales slumped 0.8%.
What it means— While monthly sales expanded 0.4%, year-over-year sales increased just 1.6%, and those numbers aren’t adjusted for inflation. On a real basis, retail sales fell 3.3%. If you want the economy to jump, this is bad news, but if you’re looking for the Fed to pause in the current rate hike cycle, then this fits the bill. Look for people to cite modest retail sales when explaining why the Fed should stand aside, but don’t expect the central bankers to pay them heed. Chair Powell and others have stood firm in calling for rates to remain high this year and for no rate cuts before 2024 at the earliest.
Initial Jobless Claims Dropped 22,000 Last Week, to 242,000… The previous week’s total included a bump in claims attributed to fraud in Massachusetts.
What it means— And just like that, a leading indicator of labor weakness changed direction. To top it off, continued claims fell last week from a revised 1.807 million to 1.799 million, missing the expected increase to 1.818 million. don’t put much stock in such little changes when looking for trends, but it does show that continued claims aren’t marching higher. If the recently unemployed are finding jobs quickly, then the labor market remains tight, and the Fed has room to do what it wants. As long as unemployment remains low, expect the Fed’s overnight rate to stay above 5%.
April Housing Starts Up 2.2% but Down 22.3% From Last Year… Housing starts were higher than expected, as homebuyers turned to new units due to the lack of existing home inventory.
What it means— Single-family permits rose 3.1% last month while multi-family unit permits dropped 9.7%, but that’s not surprising, given how many apartments buildings are under construction. This story is unfolding just as we have been discussing for the past year. Not many existing homes are available, and millions of potential homebuyers are ready to pounce. If the Fed pauses and 30-year fixed rates fall below 6%, we could see prices firm as new buyers take the plunge.
April Existing Home Sales Declined 3.4% Over March, Are Down 23.2% Over Last Year… The median existing home sold for $388,800 last month, down 1.7% over last year.
What it means— With sales off by almost 25% over 12 months, you’d think that prices would be off substantially, especially after the huge runup from late 2020 through June 2022. Clearly, that’s not the case. With inventory sitting at a mere 2.9 months’ supply, there’s little to buy, which keeps prices high, even with mortgage rates over 6%. The National Association of Realtors reports real estate price gains in about half the country, with homes in the western region receiving multiple offers this spring. Homes were on the market for just 22 days last month, down from 29 days in March but up from 17 days in April 2022. So far, this doesn’t feel like a market on the edge of a significant fall, it feels like a market waiting for clarity in the form of lower mortgage rates before buyers jump in.
Man Develops Motorcycle that Runs on Beer… Minnesota man Ky Michaelson is always working on something. The inventor holds many patents, has improved many machines, and holds more than 70 state, national, and international speed records, including one with his rocket-powered snowmobile. As impressive as that sounds, his latest invention might be the one with the broadest appeal. He built a motorcycle that runs on beer. The machine heats the beer to 300 degrees, which then generates steam that propels the motorcycle. For anyone wondering, it doesn’t have to be beer. Any carbonated brew, including Red Bull, will do. Besides, Michaelson doesn’t drink, so burning beer seemed perfect.
Data supplied by HS Dent Research
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