Weekly Market Commentary July 17th to July 21st 2023

Spending at U.S. retailers rose for the third straight month as consumers shopped online and increased outlays for new furniture. The headline Retail Sales number ticked 0.2% higher in June, which came in below both the prior month and economists’ expectations of 0.5%. The mixed report painted a picture of resilience for the U.S. consumer despite slowing momentum in spending growth. Retail Sales Control Group, a direct input into GDP, showed unusual strength increasing 0.6% compared to the 0.3% that was expected and will likely be used as confirming evidence for a rate hike at the Federal Reserve meeting next week. Notable areas of consumer activity included an increase of 1.9% in online sales, which offset most of the 2.4% fall in department stores while furniture sales jumped 1.4%.

An ample amount of housing data was released during the week which confirmed what we already knew; there are not enough homes for sale. Existing home sales dropped to the slowest pace in 14 years, which represents a 19% drop in activity compared to last year. There were just 1.08 million homes for sale at the end of June and the low inventory is keeping home prices high. The median price for existing homes sold was slightly over $410K, the second highest reading ever. First-time home buyers are struggling the most as all cash purchases now make up 26% of last month’s transactions.

Housing Starts dropped 8.0% to a rate of 1.43 million units in June, slightly lower than the 1.48 million units expected. The decline can be attributed to mean reversion as the economy saw an abnormally large 19% surge in May. Economists remain favorable on housing starts given the lack of existing homes for sale and the strength they have seen in building permits. Building Permits were lower by 3.7% due to a decline in multi-family homes. Permits for single-family homes however, increased 2.2% in June to a rate of 922,000 units, the highest since June 2022. Single-family building permits surged in the Midwest and South but were unchanged in the Northeast and West.

The Dow finished the week at 35,228, which represents ten straight green days, and the longest rally since 2017. The index closed 2.1% higher on the week. The tech heavy Nasdaq closed at 14,032, down 0.6%. The S&P 500 finished at 4,536, up 0.3% on the week. In fixed income markets, the 10-Year U.S. Treasury finished at 3.84%, 0.04% higher than last week.

Important releases next week include the FOMC meeting, the first release of second quarter GDP and Personal Consumption Expenditures (PCE).