June 28, 2021

Weekly Market Commentary June 21st to June 25th 2021

Existing Home Sales came in slightly higher than expected at 5.8 million annualized, falling 50,000 from last month’s reading. New Home Sales were very disappointing, registering an annual pace of 769,000 vs. 865,000 expected and 817,000 last month (which was revised downward by 46,000.) A lack of supply, held back by regulations, as well as rapidly increasing prices have served to hold back potential.

Manufacturing surveys continued to paint a picture of a robust industrial economy. The Richmond and Kansas City Federal Reserve banks said activity in their regions expanded faster than expectations and faster than the prior month. The closely watched Markit national manufacturing survey came in at a 62.6 reading compared to a 61.5 estimate and 62.1 prior. Any number over 50 indicates expansion, and these numbers are close to record territory, driven by pent-up demand following the pandemic and continued consumer buying of durable goods. Durable Goods orders improved from last month, rising 2.3%. This was driven by increased auto sales as the worst of the supply chain bottlenecks and semiconductor shortages seem to be passing, as well as rising airplane orders as airlines prepare for higher demand.
The Personal Consumption Expenditures Index (PCE) is the Fed’s preferred inflation survey. This week, readings were in-line with expectations, registering 3.9% topline inflation and 3.4% inflation for core goods. After months of inflation accelerating faster than economists and consumers were projecting, this was a welcome sign, and good news for fiscal and monetary policymakers, who are not fans of surprises.

Jobless claims were unchanged from last week at 411,000, but economists were looking for a 380,000 reading. The labor market recovery remains uneven and frustrating and evidence suggests businesses are having trouble adjusting to the demand/supply imbalances currently present in the economy.

Equities had a strong week, with the S&P 500 rising 2.8% to close at a record 4,281. The Dow Jones was up 3.3% to 34,434, and the Nasdaq 100 rallied 2.3% to 14,360. The 10-Year U.S. Treasury rose 7.5 basis points to finish the week at roughly 1.53%. Also influencing stocks this week were reports of progress out of Washington on an infrastructure bill. A $579 billion compromise between moderate senators includes funding for rural internet access and faltering roads and bridges, but still faces a long road to becoming law.

Next Friday, the monthly jobs report will be released. Falling on the Friday before Independence Day weekend, market reaction could be muted. Other important releases include Consumer Confidence, Construction Spending, and the Chicago PMI and ISM manufacturing surveys.