The Week On Wall Street
Stocks took a breather last week as investors digested the previous week’s surge and the month-to-date solid gains. The Dow Jones Industrial Average lost 1.67%, while the Standard & Poor’s 500 fell 1.39%. The Nasdaq Composite index dropped 1.44% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, tumbled 2.00%.
Rally Stalls Momentarily
The stock market drifted lower last week as the tug-of-war between bulls and bears played out in a week that was light on market-moving news. After falling in the first days of a holiday-shortened trading week, stocks rebounded on Thursday to recover some of the week’s losses. Stocks looked past Congressional testimony by Fed Chair Powell, who said two more rate hikes are likely in the wake of interest rate hikes by central bankers in the U.K., Switzerland, Norway, and Turkey. The retreat continued into Friday, fueled by global growth fears from new economic data indicating more robust economic slowdowns in the eurozone, Japan, and Australia.
Housing Sentiment Improves
Home builders' confidence edged into positive territory for the first time in 11 months, aided by strong demand, low inventory, and a recovering supply chain. May’s new home sales, which rose 21.7%–the most significant percentage gain since October 2016, validated this confidence. The number of new home starts in May (1.63 million) hit a 13-month high, with both single- and multi-family homes up substantially. Sales of existing homes in May rose 0.2% month-over-month while declining 20.4% from a year ago. The existing home market continues to suffer from low inventory and still-high prices. The median price of a home sold in May declined 3.1% year-over-year to $396,100.6
This Week: Key Economic Data
Tuesday: Durable Goods Orders. New Home Sales.
Thursday: Gross Domestic Product (GDP). Jobless Claims.
Friday: Personal Income and Outlays. Consumer Sentiment.
This Week: Notable Companies Reporting Earnings
Tuesday: Walgreens Boots Alliance, Inc. (WBA).
Wednesday: Micron Technology, Inc. (MU), General Mills, Inc. (GIS).
Thursday: Nike, Inc. (NKE), McCormick & Company, Inc. (MKC)
Consensus thinking is recession is just over the horizon and the market must fall because of that. Well, if we’ve learned anything over time it is that the market likes to prove consensus thinking wrong and that is exactly what it has done so far this year. I would expect some choppiness as we get into August, but as of this writing the market is resilient and wants to go up. It has mostly been led by tech which was beaten down badly last year. Ironically, energy was a great place to be in 2022 and has turned out to be lackluster in 2023. Just goes to show you what was hot last year may not be the place to be this year. Sounds like a case where a diversified portfolio makes sense. Imagine that.
Inflation is coming down. The Fed machinates regarding interest rates, but the numbers don't lie. They're coming down. Now, they also want to see unemployment up. We haven't seen that just yet, but it is coming. Once we have lower inflation and higher unemployment they will have to wave the white flag on rate hikes. It is coming. Of course, I reserve the right for the Fed to overdo it and break something. After all, they whiffed on inflation in 2021, so they could whiff here again. Hopefully they learned something from the past.
Breakthroughs in artificial intelligence (AI) have reset and reminded what tech can be and do for us. We’re in AI’s infancy and it is an exciting time to witness the changes, some good and some bad, ahead. More on tech and AI in the quarterly update. Stay tuned…