Your Weekly Update for Monday, July 3, 2023.
Beacon Rock Wealth Advisors is a dba of BR Capital, Inc. is a financial planning and registered investment advisory firm in Camas, Washington. We are always available to answer your finance questions. Give us a call at (800) 562-7096 or send an email to [email protected].
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Mike Elerath
CERTIFIED FINANCIAL PLANNERTM
CERTIFIED IN LONG-TERM CARE
[email protected]
Bill Roller
NMLS #107972
CHARTERED FINANCIAL ANALYST
CERTIFIED FINANCIAL PLANNERTM
CHARTERED MARKET TECHNICIAN
[email protected]
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Summary
Markets were up last week. The Dow Jones Industrial Average rose 2.02% to 34,407.60 while the S&P500 ended up 2.35% to 4,450.38. The Nasdaq Composite rose 2.19% to 13,787.92. The annual yield on the 30-year Treasury rose 3.4 basis point(s) to 3.855%.
Economic data for the week included U.S. GDP for Q1 seeing a revision upward. Durable goods, home prices, and home sales all showed gains for the prior month, providing further evidence that the economyās slowing into recession isnāt assured.
Equities saw gains around the world last week, with signs of hope in economic data (and a lack of negatives). Bonds were mixed, however, as interest rates continued to climb upon hawkish central bank rhetoric. Commodities were mixed, with grain prices down but energy up.
Economic Notes
(0/+) The third and final release of U.S. GDP for Q1 was upgraded from 1.3% to 2.0%, well above expectations for minimal change. While now old data, the final figure was highlighted by upward revisions to net exports and consumer spending (health care and retail notably), while offset a bit by weaker nonresidential fixed investment (durable and nondurable goods manufacturing) and government spending. The annualized PCE price index was revised down a tenth to 4.1%, as was core PCE to 4.9%.
The Atlanta Fedās GDPNow measure for Q2 continues to point to trend-like GDP growth, which was upgraded by a half-percent last week to a pace of 2.2%. However, these estimates have crept down from more optimistic growth projections that were near 3% about a month ago. The Blue Chip consensus estimate has been more pessimistic, steadily creeping upward during the quarter to just under 1% (within a range of the top 10 and bottom 10 estimates of around -0.5% to +2.0%). In the GDPNow number, the primary contributions remain strong consumer spending as well as a recovery in nonresidential fixed investment, offset by an expected reversal back down for net exports. Overall, there has been a steady rise in optimism about Q2 growth, going along with falling recession probabilities, at least from the standpoint of qualitative opinions. However, traditional quantitative metrics, such as the Index of Leading Economic Indicators, and other checklists, continue to point to a high recession probability over the next 6-12 months. As the quarter closes, this lack of clarity is likely to continue to weigh on financial markets in coming months.
(0) Personal income rose by 0.4% in May, a tenth above the prior month and that of expectations. It was led by a variety of factors, including regular employment compensation, personal interest income (thanks to now-higher yields on savings), and Medicaid payments. Personal spending rose only 0.1%, a tenth below consensus and a sharp decline from the growth in April. The personal savings rate came in up a few tenths at 4.6%. On a year-over-year basis, income was up 6%, with spending split between a 8% gain for services but only 2% for goodsāall of which were pumped up on a nominal basis by high inflation readings. Monthly PCE inflation came in at 0.1% for headline and 0.3% for core. Year-over-year inflation saw a deceleration sharply to 3.8% on a headline basis (a 2-year low), while only down a tenth to 4.6% on a core level, ex-food and energy. In recent months, as with other inflation indexes, prices for services continue to run at a faster clip than goods prices, which have stagnated to a larger degree.
(+) Durable goods orders in May rose by 1.7%, well above the -0.9% forecasted decline, and was led by commercial aircraft (up 32%) and autos. Removing the more volatile items, core capital goods orders rose a more tempered 0.7%, above the 0.1% gain expected, with gains in electrical equipment and machinery over a percent each. Core capital goods shipments rose 0.2%. On a year-over-year basis, orders are up over 5%, while removing transportation orders takes that down to just over 0%. When adjusting for producer prices being up over 5% in the past year, the resulting ārealā growth falls to flat or negative. This segment remains related to weaker manufacturing data generally, which continues to fall behind stronger services growth.
(+/0) The S&P Case-Shiller 20-city home price index rose 0.9% in April, well above the 0.4% gain expected. Prices gained in all but one of the 20 key markets, led by Cleveland, Boston, and New York, all of which were up around 1.5%; Phoenix fell back a tenth of a percent. The national year-over-year rate of change decelerated slightly further, from -1.1% to -1.7%. This data is reported with a lag of several months, but continues to point to home prices āhanging in there,ā largely due to the lack of inventory.
(+) The wider-reaching FHFA house price index for April saw a similar increase of 0.7%. On a regional basis, New England experienced the strongest gains of over 2%, while prices in the Pacific region were flattish. Year-over-year, Apr. 2022-Apr. 2023, national prices remained 3% higher on a seasonally-adjusted basis, which reverses several straight months of declines. (It also stands in sharp contrast to the prior Apr. 2021-Apr. 2022 year where prices gained nearly 19%.) Interestingly, on a compounded annual growth rate basis, since 1991, prices are up a nominal 4.4%. Inflation over that time was an annualized 2.5%, putting real price growth at a rate of just under 2%. This is not far from multi-decade averages, which peg real price growth in the 0-2% range.
(+) New home sales in May rose 12.2% to a seasonally-adjusted rate of 763k units, well above expectations of a -1.2% decline. Every region saw gains in the month, led by the South and West. The monthsā supply of new homes ticked down from 7.6 to 6.7, reflecting tighter inventories. On a year-over-year basis, new home sales are up 20%, and 40% above last summerās low, showing signs of a positive trend upward. Within the breakdown of inventory, while ācompleted homesā remain low, āhomes under constructionā and āhomes not startedā each are high, pointing to stronger completions for future months. The median new home price came in at $416,300, down nearly -8% on a year-over-year basis, and -16% from last yearās peak, which has helped offset the rise in mortgage financing costs a bit, although not completely. There remains a deep supply deficit to fill.
(-) Pending home sales fell by -2.7% in May, a bit further than the expected -0.5% decline. The year-over-year drop improved slightly to -21%. Regionally, the Northeast saw gains of 12%, offset by declines in the mid-single digits elsewhere in the country. This points to lower existing home sales data over the next several months.
(+) The Conference Boardās index of consumer confidence for June rose by 7.2 points to 109.7, above the 104.0 level expected, and the highest level since early 2022. Assessments of both present conditions and future expectations rose at equivalent rates, with a stronger labor differential as well (largely driven by those reporting jobs being plentiful).
(0) Initial jobless claims for the Jun. 24 ending week declined by -26k to 239k, well below the forecasted minimal change to 265k. Continuing claims for the Jun. 17 week fell by -19k to 1.742 mil., contrary to expectations for a small increase. For initial claims, the often-used 4-week moving average has been ticking higher to the highest level since Nov. 2021, and continues to feature anomalies from OH and MN. Itās been fairly subtle, and choppy, with a variety of quirks, such as seasonal adjustments and fraud (both in and out of the numbers), but the steady seasonally-adjusted readings around the 200k level or so have now drifted up to around 250k. Then again, unadjusted initial claims readings remain contained in a much tighter band. All that said, this continues to point to some weakening at the margins of the labor market, but no signs of layoff spikes as seen during a recession quite yet.
Market Notes
| Period ending 6/30/2023Ā | 1 Week %Ā | YTD %Ā |
| DJIA | 2.02 | 4.94 |
| S&P 500 | 2.36 | 16.89 |
| NASDAQ | 2.20 | 32.32 |
| Russell 2000 | 3.75 | 8.09 |
| MSCI-EAFE | 1.66 | 11.67 |
| MSCI-EM | -0.04 | 4.89 |
| Bloomberg U.S. Aggregate | -0.26 | 2.09 |
| U.S. Treasury YieldsĀ | 3 Mo.Ā | 2 Yr.Ā | 5 Yr.Ā | 10 Yr.Ā | 30 Yr.Ā |
| 12/31/2022 | 4.42 | 4.41 | 3.99 | 3.88 | 3.97 |
| 6/23/2023 | 5.41 | 4.71 | 3.99 | 3.74 | 3.82 |
| 6/30/2023 | 5.43 | 4.87 | 4.13 | 3.81 | 3.85 |
U.S. stocks ended the week higher, capping off a strong second quarter. Every sector gained last week, led by more cyclical energy and materials, followed by industrials and financials. Real estate also gained 5%, upon some positivity in the office sector (a completed major building transaction during a period where it was assumed few would occur). Laggards included the usual defensives of consumer staples, health care, and utilities, with minimal gains.
Fears of a military mutiny in Russia the prior weekend, although called off, raised geopolitical concerns to some degree early in the week. Although Russian financial markets are no longer considered āinvestableā by the West, destabilization in the population and large nuclear arsenal raises concerns. Markets elsewhere didnāt appear concerned, although long-term effects are possible in commodity markets, such as oil and grain.
Mid-week, semiconductor stocks led sentiment downward, with news of further potential U.S. government restrictions on exports to China. On a positive front, all 23 key tested banks survived the 2023 Fed stress test, which had included āsevere global recessionā and variables such as extreme commercial real estate price declines, a doubling of the unemployment rate, as well as other losses from credit and mortgages. In regard to a piece of data that should be seemingly unimportant, the market capitalization of Apple reached $3 trillionāa recordāand the type of news that can help feed an investor āfear of missing outā when conditions are bullish.
Foreign stocks also saw gains last week, with economic conditions generally coming in decently, as opposed to deteriorating. Eurozone equities outperformed those in the U.S., while the U.K., Japan, and the emerging markets underperformed. European inflation continued to fall, which helped sentiment. Most emerging nations saw gains last week as well, led by India, up around 3%. This reflected strong economic growth as well, success of Indiaās ānewā energy export sector (offloading/relabeling Russian oil that had been purchased at a discount), as well as stronger announced ties to the U.S. as a geopolitical and economic counterbalance to China in the region. Hopes persist that Chinese authorities may continue stimulus to bolster lackluster the economic recovery as of late.
Bonds were mixed last week, as the continued hawkish tone from the Federal Reserve and other global central banks led to continued rises in interest rates. The 10-year treasury reached nearly 3.9%, the highest level since early March. U.S. treasuries fell back, while high yield and floating rate bank loans gained along with narrowing credit spreads. Foreign bonds were mixed, with little change in the U.S. dollar for the week.
Commodity indexes were little changed as a whole, although that masked a sharp drop in agricultural prices and gains in energy. Crude oil rose over 2% last week to $71/barrel, while natural gas fell an equivalent amount. Corn and wheat prices each fell by around -10% to -15%, with stronger crop conditions reported relative to average expectations, raising potential for high seasonal supply.
Mortgage Rates
āMortgage rates have hovered in the six to seven percent range for over six months and, despite affordability headwinds, homebuyers have adjusted and driven new home sales to its highest level in more than a year,ā said Sam Khater, Freddie Macās Chief Economist. āNew home sales have rebounded more robustly than the resale market due to a marginally greater supply of new construction. The improved demand has led to a firming of prices, which have now increased for several months in a row.ā
The 30-year fixed-rate mortgageĀ averaged 6.71 percent as of June 29, 2023, up from last week when it averaged 6.67 percent. A year ago at this time, the 30-year FRM averaged 5.70 percent.
The 15-year fixed-rate mortgageĀ averaged 6.06 percent, up from last week when it averaged 6.03 percent. A year ago at this time, the 15-year FRM averaged 4.83 percent.
Freddie Macās Primary Mortgage Market SurveyĀ® is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Borrowers may still pay closing costs which are not included in the survey.
Through our relationship with Prestige Mortgage Services Inc. dba Prestige Home Mortgage (NMLS#14216) in Vancouver, Washington we originate residential and reverse mortgages.
Selected Cryptocurrencies
| Symbol | Name | Price | 24h % | 7d % | Market Cap | Volume(24h) |
| BTC | Bitcoin | 30648.24 | 0.39% | 0.84% | $595,150,489,109 | $12,351,265,801 |
| ETH | Ethereum | 1964.85 | 2.47% | 4.23% | $236,212,752,485 | $8,133,357,181 |
| BNB | BNB | 248.25 | 1.15% | 4.01% | $38,690,687,023 | $666,436,327 |
| XRP | XRP | 0.4848 | 0.56% | -0.29% | $25,328,484,701 | $975,425,097 |
| ADA | Cardano | 0.2933 | 1.32% | 1.57% | $10,248,414,607 | $193,416,660 |
| DOGE | Dogecoin | 0.06768 | 0.74% | 2.57% | $9,476,477,137 | $330,054,959 |
| LTC | Litecoin | 109.45 | -2.02% | 23.48% | $8,009,536,471 | $1,324,373,247 |
| SOL | Solana | 19.28 | 1.69% | 13.74% | $7,727,574,906 | $351,403,731 |
| TRX | TRON | 0.07736 | 2.33% | 4.63% | $6,955,111,718 | $140,456,523 |
| DOT | Polkadot | 5.43 | 2.57% | 5.12% | $6,526,023,408 | $184,104,692 |
| MATIC | Polygon | 0.6851 | 2.06% | 3.63% | $6,384,492,565 | $282,963,453 |
| BCH | Bitcoin Cash | 290.41 | -3.00% | 46.87% | $5,645,073,338 | $803,703,612 |
| TON | Toncoin | 1.44 | 0.51% | 0.28% | $4,931,312,485 | $8,620,532 |
| WBTC | Wrapped Bitcoin | 30667.8 | 0.50% | 1.11% | $4,817,189,739 | $135,006,852 |
| AVAX | Avalanche | 13.19 | 1.47% | -2.25% | $4,559,159,111 | $169,314,234 |
| SHIB | Shiba Inu | $0.0…07677 | 1.38% | -0.94% | $4,524,462,444 | $116,529,774 |
Information current as of 6:05 AM PDT, Monday, July 3, 2023. Source: https://coinmarketcap.com
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Sources: Ryan Long, CFA, FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Citigroup, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Marketfield Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, PIMCO, Standard & Poorās, StockCharts.com, The Conference Board, Thomson Reuters, T. Rowe Price, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wall Street Journal, The Washington Post. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. FocusPoint Solutions, Inc. is a registered investment advisor.
Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.