Weekly Market Commentary July 18th to July 22nd 2022
As earnings season begins, we had a relatively slow week for economic data releases. This week provided several indicators of the present situation of the housing market as well as U.S. manufacturing metrics.
New home building hit a nine-month low as privately owned housing starts in June were at a seasonally adjusted rate of 1.56mm. This figure is down 2% from May and up 1.4% year-over-year. Permits for new construction projects also slipped 0.6% from May’s revised number, the latest indication of the housing market cooling as rising interest rates decrease affordability. Additionally, Existing Home Sales declined for the fifth month in a row, down 5.4% from May and 14.2% from this point last year.
The S&P Global US Manufacturing PMI was reported at 52.3, modestly below the prior month reading of 52.7. Private sector output contracted for the first time in over two years.
The National Association of Homebuilders monthly index of activity fell to a two-year low, at 55 points from 67 last month. This number surprised to the downside, as the consensus for June was 66. This metric reflects building activity of single-family homes and the sharp decline in both present single family home building, six month forward single family homes and slowing traffic of prospective buyers indicate a cooling of housing demand.
Initial jobless claims exceeded expectations, coming in at 251,000 vs. the consensus of 240,000. Companies announcing job cuts amid increasing recession fears has resulted in the second straight week of increasing unemployment insurance claims. We can expect this trend to continue as the Federal Reserve will bolster its efforts against inflation, which ultimately might pinch demand for workers.
The Philadelphia Federal Reserve regional manufacturing activity contracted notably more than expected, falling to -12.3 vs the consensus that it would rebound to a positive 0.4. Sliding from 3.3 last month. This indicator suggests surprisingly rapid contraction of economic activity. The report’s forward-looking statements predict slowing activity and new orders but increases in shipments and employment over the next six months.
The U.S. equity markets had a steady run this week, with the S&P 500 up 2.5% to 3,961. The NASDAQ Composite also had a good week, finishing higher by 3.3%. The yield on the 10-Year U.S. Treasury was lower by 15 basis points, ending the final trading session at 2.77%.
Next week the market will keep a close eye on the Federal Open Market Committee rate decision, as well as a new look at inflation with a Personal Consumption Expenditures (PCE) Report. A first look at the Q2 GDP estimate, New Home Sales and Durable Goods Orders will be reported as well.