Weekly Market Update – June 28, 2024

Quick Takes

• In a mostly quiet week of news and trading, most stocks saw slight gains. The S&P 500, Nasdaq, and Russell 2000 saw gains of +0.3%, +1.0%, and +0.8%, respectively. Overseas, stocks were mixed, with the MSCI EAFE up +0.3% while the MSCI Emerging Markets Index slipped -0.5%.
• Other than the 2-year U.S. Treasury yield, which slipped -2 basis to close at 4.71%, most yields crept up over the week. The benchmark 10-year U.S. Treasury yield inched up +3 basis points to 4.29%. With yields up, the Bloomberg U.S. Aggregate Bond Index dipped -0.2% for the week, and the Bloomberg Global Aggregate ex U.S. Bond Index (non-U.S. bonds) slipped -0.3%.
• Economic data for the week was characterized by slowing inflation and consumption data. The Core PCE Price Index, an inflation gauge favored by the Federal Reserve, was down from the prior month and at its slowest pace in seven months. Personal Spending was also subdued, and the prior month was also revised lower.

Inflation and consumption slows; stocks gain while bonds slip

Stocks saw tepid gains for the week, concluding what was otherwise a stellar first half of the year. The latest batch of data showed inflation has cooled, but so has personal consumption. The S&P 500 Index reacted with a +0.33% move up for the week and finished the first half of 2024 up +14.95 (with dividends included). In a fairly quiet week of trading, small-cap stocks and the Information Technology sector performed best, with growth beating value again. The Nasdaq Composite Index was up +0.96% and finished the first half up 18.97%. The small cap Russell 2000 Index finished the week up +0.81% but trails the larger cap indices with just a 0.56% first half return. The Russell 2000 index provider, FTSE Russell, rebalanced the Russell indexes after the market close on Friday, so some of the week’s trading stemmed from positioning ahead of the adjustment in those indexes.

Overseas, stocks were mixed with developed market international stocks (as measured by the MSCI EAFE Index), up slightly for the week with a +0.27% gain and up a modest +3.48% for the first half. The MSCI Emerging Markets Index slipped -0.47% for the week and is up +5.68% for the first half of the year. 

For bonds, the week saw most yields creep up a bit again, with the benchmark 10-year U.S. Treasury yield up +3 basis to close at 4.29%. The shorter 2-year U.S. Treasury yield actually slipped a bit, down -2 basis point on the week to finish at 4.71%. Bond prices and yields move in opposite directions, and the Bloomberg U.S. Aggregate Bond Index finished the week with a modest -0.2% dip, and the Bloomberg Global Aggregate ex U.S. Bond Index (non-U.S. bonds) slipped -0.3%. 

Chart of the Week

The cost of goods and services held steady in May, with the Personal Consumption Expenditure (PCE) Deflator (aka PCE Price Index) unchanged, as expected, and down from +0.3% the prior month. On a year-over-year basis, the PCE Price Index was also unchanged at +2.6%, matching expectations and down a tick from the prior month’s +2.8% annual rate. The Core PCE Price Index, which excludes food and energy and is the Fed’s preferred inflation gauge, increased by +0.1%, in line with expectations and a tick down from the prior month’s +0.2% pace. That matches the smallest increase in seven months. Year-over-year, the Core-PCE Price Index is up +2.6%, matching expectations and down from the +2.8% annual rate the prior month. Essentially, there was little change in this inflation report, which was in line with expectations and will help keep alive the market’s hope for a Fed rate cut before the November election.

Personal Consumption Expenditures (PCE) Inflation is Flat in May

PCE Index Year-over-Year % Change

Note: Seasonally Adjusted
Source: U.S. Bureau of Economic Analysis, The Wall Street Journal.

Economic Review

• U.S. economic growth for the first quarter was revised slightly higher to +1.4% annual pace from the previous estimate of +1.3%. The increase in real Gross Domestic Product (GDP), the official scorecard for the economy, was still the smallest in almost two years, down from +1.6% initial reading. A wider trade deficit, lower production of unsold goods or inventories, and a big downgrade in consumer spending were the biggest contributors to the slowdown in growth. Personal Consumption Expenditure (PCE) grew at just a +1.5% annual clip in the first quarter, down from an originally reported 2.5% and the prior quarter’s +3.3% annual rate. Consumer spending accounts for about 70% of the U.S. economy, so the slowdown is a concerning signal for future growth. Government Spending, on the other hand, was revised up to +1.8% versus +1.2% in the initial release and down from +4.6% the prior quarter. Government expenditures had been up considerably from the 10-year average of about +1.8%. Most other figures in the report were little changed from the prior two estimates. The latest GDP estimate is the third and final one published by the government. The original release is updated twice to take into account new information.
• The Commerce Department reported Durable Goods Orders for long-lasting items such as televisions, appliances, and transportation equipment rose +0.1% in May from +0.2% the prior month (revised lower from the originally reported +0.6%) but beating expectations for a -0.5% drop. Durable Goods Orders, Excluding Transportation, were down -0.1% versus the prior month’s unrevised +0.4% level, missing expectations for +0.2%. The important Core Capital Goods Orders (nondefense capital goods excluding aircraft), a proxy for business spending, sank -0.6%, down from +0.3% the prior month (revised up from +0.2%) and well short of expectations for +0.1%. Much of the month’s weakness was tied to a poor month for Boeing, which has been struggling with safety-related issues with their airplanes. Commercial aircraft bookings slid -2.8% for the month.
• The Federal Reserve Bank of Chicago reported that U.S. economic activity improved in May, as the Chicago Fed National Activity Index (CFNAI) rose to +0.18 from -0.26 the prior month (which was revised lower from the originally reported -0.23). Readings below zero indicate below-trend-growth in the national economic activity. The Production and Income category contributed +0.23 to the index and was the only one of the broad categories of indicators used to construct the index that was positive for the month. The Employment, Unemployment, and Hours category was flat, up from -0.02 the prior month. The Personal Consumption and Housing category contribution was -0.03, an improvement from -0.06 the prior month. The Sales, Orders, and Inventories category contribution was up a tick to -0.02 from -0.01 the prior month. Overall breadth of the index improved, with 48 of the 85 individual indicators making positive contributions, up from just 20 the prior month.
• Personal Spending was tepid in May. Consumer spending rose +0.2% in May, shy of expectations for +0.3% but up from +0.1% the prior month (revised downward from the originally released +0.2%). However, after adjusting for inflation, Real Personal Spending was up +0.3%, in line with expectations and up from the unrevised -0.1% pace the prior month. Meanwhile, Personal Income rose +0.5%, above expectations of +0.4% and up from the prior month’s unrevised +0.3%. The Personal Savings Rate rose to +3.9% from +3.7% the prior month. 
• The Conference Board’s Consumer Confidence Index slipped to 100.4 in June from 101.3 from the prior month but was above expectations of 100. Consumer confidence tends to signal whether the economy is getting better or worse. Confidence has retreated since the start of the year and sits well below the pre-pandemic high of 135.8. The Present Situation gauge rose to a three-year high of 141.5 from 140.8 the prior month (revised down from 143.1). The Expectations gauge — which reflects consumers’ six-month outlook — fell to 73.0 from 74.9 (revised up slightly from 74.6). Levels below the 80 mark on the expectations index often signals a recession within the next year. In good times, the index can top 120 or more. 
• The final reading of the June University of Michigan Consumer Sentiment Index was revised much higher than expected to 68.2 from the preliminary 65.6. Expectations were for it to tick up to 66.0. Still, it is well below the prior month’s 69.1 and marks the lowest final monthly reading in seven months. It also remains far below the pre-pandemic peak of 101. The Current Economic Conditions component was revised to 69.5 from the initial estimate of 69.6 but was up from 62.5 the prior month. The Consumer Expectations component was revised sharply higher, to 69.6 from the initial estimate of 68.0, and was up from 67.6 the prior month. One-year inflation expectations ticked down to +3.0%, below expectations to move up to +3.2% and the preliminary estimate of +3.3%. The five-year inflation expectations came in at +3.0%, a tick down from the prior month’s +3.1%, which is where it was expected to stay.
• Texas factory activity improved in June, with the Texas Manufacturing Outlook Survey moving up to -15.1 from an unrevised -19.4 the prior month, near expectations for -15.0. The Fed’s 11th District saw the Production component move back into positive territory after turning negative in May—but just barely at +0.7. Shipments also moved to positive levels, improving to +2.8 from -3.0. The Prices Paid and Prices Received gauges remain elevated, and both moved higher for the month. New Orders and Capacity Utilization remained negative. The index for Future Conditions Six Months Ahead jumped +16.2 points to +12.9, its first time in positive territory since June 2022. The Texas Service Sector Outlook Survey rose in June but at a slower pace than the prior month, finishing at -4.1 versus -12.1 the prior month. 
• The Kansas City Fed Manufacturing Survey worsened to -8 in June from -2 the month before, which was below expectations for -5. The New Orders index was unchanged at -13, while the Production index fell to -11 from -1. The Employment index fell as well, down to -11 from +9. The Prices Paid ticked fell to +9 from +19 the prior month. The Kansas City Fed Service Sector Outlook Survey fell to +2 from +11 the prior month.
• The Richmond Fed Manufacturing index fell to -10 from an unrevised 0.0 the previous month, which was worse than expectations for -0.3. Of its three component indexes, the Shipments component plummeted to -9 after surging to +13 the prior month. The New Orders index, part of the Shipments component, fell to 17 from -6. However, the Employment index improved slightly to -2 from -6. The Capacity Utilization component slowed to -7 from -5. Meanwhile, the Employment component was unchanged at -7.
• The Chicago Purchasing Managers Index (PMI), a barometer for the Chicago region’s business and manufacturing conditions (also known as the Chicago Business Barometer), jumped to 47.4 in June from an unrevised 35.4 the prior month and far above expectations of 40.0. Readings below the 50 level indicate contraction. This is the seventh consecutive reading in contraction territory. New Orders, Employment, Inventories, Supplier Deliveries, Production, and Order Backlogs all signaled contraction. In fact, only the Prices Paid component showed expansion, but at least it was at a slower pace.
• According to the Case-Shiller S&P CoreLogic 20-City Home Price Index, U.S. housing prices hit yet another all-time high in March, marking 15 straight monthly increases, as the index increased a seasonally adjusted +0.38%, above expectations for a +0.30% increase, and up from the prior month’s +0.32% pace (revised down from +0.33%). On a year-over-year (YoY) basis, home prices in the 20 major metro markets in the U.S. were up +7.20%, above expectations for +7.00% but down from the prior month’s +7.46% annual gain. San Diego again posted the biggest year-over-year home-price gains, up +10.29%, followed closely by New York, Chicago, and Los Angeles. Home prices grew the slowest in Portland, with a 1.72% annual rate. All 20 cities registered annual increases for the fifth consecutive month. While housing affordability is near its lowest level in four decades, a very limited supply of homes for sale is supporting house price appreciation. 
• Like the Case Shiller HPI, the competing Federal Housing Finance Agency (FHFA) House Price Index (HPI) showed U.S. home prices rose in April, up a seasonally adjusted +0.2% compared to the 0.0% pace the prior month (revised down from +0.1%). Expectations were for a +0.3% increase. The government data showed home prices up +6.3% year-over-year compared to 6.7% the prior month. 
• The Commerce Department reported New Home Sales plunged -11.3% in May, much worse than the -0.2% drop expected and far below the +2.0% the prior month (revised sharply up from -4.7%). That equates to 619,000 units, the lowest level since November, and down from the prior month’s 698,000 units (revised up from the originally reported 634,000). New Home Sales data tend to be volatile month-on-month and are often revised. New-home sales remain far below the recent peak of over 1 million units in August 2020. Year-over-year, sales of new homes fell -16.5% compared to -7.7% the prior month which was the first annual decline since March of 2023. By region, month-over-month sales plunged -44% in the Northeast, down -12.0% in the South, off -8.6% in the Midwest, and -4.5 in the West. The Median New Home Price fell to $417,400 from $417,900 the prior month. The inventory of new homes for sale rose to 481,000 units from 480,000 the prior month. The months of supply at the current rate of sales was 9.3 compared to 9.1 the prior month.
• The National Association of Realtors (NAR) reported that Pending Home Sales slipped -2.1% to an all-time low in May. That was far worse than expectations for a +0.5% gain but up from the prior month’s unrevised rate of -7.7%. Year-over-year sales were down -6.6%, below the -0.8% annual pace the prior month. From a regional perspective, the Northeast and West saw slight gains, while the pending sales indexes for the South and Midwest each fell to their lowest levels since 2010. According to Lawrence Yun, chief economist at the NAR, “the first half of the year did not meet expectations regarding home sales but exceeded expectations related to home prices,” adding, “in the second half of 2024, look for moderately lower mortgage rates, higher home sales and stabilizing home prices.”
• Weekly MBA Mortgage Applications edged up +0.8% for the week ended June 21, following the prior week’s +0.9% rise. The Purchase Index was up +1.2% following a +1.6% increase the prior week. The Refinance Index slipped -0.05% following a -0.4% dip the prior week. The average 30-Year Mortgage Rate slipped to 6.93% from 6.94% the week before, its second week below 7%.
• Weekly Initial Jobless Claims fell -6,000 to 233,000 for the week ended June 21, above expectations for 235,000. The prior week was revised up to 239,000 from 238,0000. The number of people already collecting unemployment claims (i.e., Continuing Claims) rose to 1,839,000 in the week ended June 15, above consensus estimates for 1,828,000. Last week’s reading of 1,828,000 was revised down to 1,821,000.

The Week Ahead

It is another holiday-shortened week, with stock and bond markets closing early on Wednesday and remaining closed on Thursday in observance of Independence Day. The latest Employment Report for June job creation will be the week’s highlight on Friday. Clues may come on Tuesday when the Bureau of Labor Statistics (BLS) reports the Job Openings and Labor Turnover Survey. Also on the calendar is the Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) for June on Monday and the Services PMI on Wednesday. Also, on Wednesday, the Federal Open Market Committee will publish minutes from its mid-June monetary policy meeting.

Did You Know?

TAX HELP LOW – It is another holiday-shortened week, with stock and bond markets closing early on Wednesday and remaining closed on Thursday in observance of Independence Day. The latest Employment Report for June job creation will be the week’s highlight on Friday. Clues may come on Tuesday when the Bureau of Labor Statistics (BLS) reports the Job Openings and Labor Turnover Survey. Also on the calendar is the Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) for June on Monday and the Services PMI on Wednesday. Also, on Wednesday, the Federal Open Market Committee will publish minutes from its mid-June monetary policy meeting.

TRAVEL TIME – The TSA expects more than 3 million people to go through airport security on Friday, June 28. Seven of the 10 busiest air-travel days in the agency’s history happened between May 23 and June 27. Plane travel typically spikes around the end of June, but this year’s levels are unprecedented, thanks partly to a calendar quirk. With Independence Day on a Thursday, travelers can snag two vacation weekends (Source: The Wall Street Journal).

OFF THE RECORD – The Consumer Financial Protection Bureau (CFPB) proposed a new rule to remove medical bills from credit reports beginning next year. The CFPB estimates that the rule will improve the credit scores of 15 million Americans and result in the approval of 22,000 additional mortgages each year (Source: CFPB, MFS).

This Week in History

THE FIRST ATM – On June 27, 1967, the world’s first cash point—a forerunner of today’s ATMs—was unveiled at a Barclays Bank branch in London. The machine allowed customers to withdraw up to £10, then equivalent to $28, at a time (Source: The Wall Street Journal).

Asset Class Performance

Source: Bloomberg.

Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by 30% US Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4% Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.