Market Commentary for the week ending May 22nd, 2021
- Sales of new and existing homes slow while prices continue to climb.
- Stocks were marginally lower in the U.S. and marginally higher around the world.
- The economy is showing continued signs of strength in both the manufacturing and services sectors.
This Week’s Performance Highlights
- Market volatility eased with nearly all indexes closing fractionally higher or lower for the week. U.S. large stocks, as measured by the S&P 500, were down -0.4%, the Dow Industrials lost -0.5%, while the tech-heavy NASDAQ, which has been lagging behind in 2021, gained +0.3%. Small U.S. stocks were off -0.5%.
- Performance among the various market sectors was mixed with the year’s best performer, energy, down this week by -2.5% but still higher by +39.1% in 2021! Technology stocks, among this year’s poorer performers, gained +0.2% this week.
Apple (AAPL), one of the greatest stock performers of the past decade, has struggled this year down -5.2% while the S&P 500 has gained +11.3%. This week the company’s CEO Tim Cook took the stand in court battle between Apple and Epic Games, the maker of the video game Fortnite, defending Apple’s App Store pricing and other practices. There is some risk the outcome of this case could have a meaningful impact on Apple’s services revenue.
- International markets were generally higher on the week with developed markets gaining +0.6 and now up +9.7% for the year. Eurozone markets have posted the biggest year-to-date gains averaging +13.9% with markets in France and the United Kingdom among the best performers.
- Emerging markets also gained up an average of +0.4% helped by a rebound in China with stocks there gaining +2.0% but still lower by -2.8% in 2021.
- Gold was one of the week’s best performers gaining +1.9%. It can be argued that signs of inflation and fears that it persist could be driving the price but gold still remains lower for the year by -1.3%.
- Real estate gained +0.7% for the week as the group continues to rebound from the pandemic selloff. Today real estate stocks are down just -6.1% from their pre-pandemic highs.
- Commodities declined -1.6% but are holding onto a +22.2% year-to-date gain. This rally has contributed to fears of inflation but note that commodity prices are still -19.5% below their 2018 highs.
- According to Federal Open Market Committee (FOMC) meeting minutes, a meeting of Federal Reserve members, released this week, it was suggested that the current low interest policy may need to be reconsidered if economic activity continues to surge. Such news could drive bond prices lower but not this week with prices gaining +0.1% and the yield on the benchmark 10-Year U.S. Treasury dropped marginally.
The housing market is red hot with homes for sale staying on the market for an average of just 17 days. There are many stories of homes being listed and immediately having dozens of offers at prices often exceeding the list price. Read more about the current housing market below in the Economic Indicators section. A separate report showed 16% of Americans moving between April 2020 and April 2021 compared to just 14% the year before.
$1.1 million – According to a survey of 1,000 investors by brokerage firm Charles Schwab, it takes $1.1 million to achieve “financial happiness” compared to respondents the year before saying it took $1.75 million. The same survey showed that 65% of investors with a financial plan feel financially secure while only 40% of those without a plan feel the same.
The housing industry is slowing, although not necessarily due to decreasing demand, with new housing starts unexpectedly falling to an annualized rate of 1.57 million, a decrease of -9.5% compared to the prior month and meaningfully below economists’ estimate of 1.70 million. The month’s decline was entirely the result of starts for single-family homes falling -13% while multi-family starts increased by +4%. It was mixed by region as well with the Midwest and South both seeing declines while starts in the Northeast and West where higher.
The slowdown is being blamed on both a lack of supplies, including lumber which has skyrocketed in price, and a labor shortage as the factors fueling demand remain in place including low interest rates and a tight supply of homes for sale.
Existing home sales were down for the month as well and below forecasts coming in at 5.85 million annualized. This was a drop of -2.7% compared to the prior month and the third consecutive monthly decline. The Midwest was the only region reporting the most recent month was better than the month before while all other regions suffered a decline.
A lack of inventory of homes for sale combined with persistently strong demand has driven the average home price to a record $364,800 as illustrated in the accompanying graph. This represent a gain of +13.6% compared to a year ago. The current inventory of homes for sale is just 2.4 months. Economists expect demand to remain strong.
61.5 and 70.5
The pace of activity in both the manufacturing and services sector continues to gain momentum according to reports from research firm IHS Markit. Their index of manufacturing activity climbed to 61.5 from 60.5 the month before (any reading above 50 indicates growth). The services sector index surged to an all-time record of 70.5! Both numbers could have been higher had it not been for supply constraints. The big question is what will activity look like once we get past the big surge early in the economy’s reopening.
Initial jobless claims continue to trend in the right direction falling to 444,000 for the week compared to 478,000 the week before. There are still 3.75 million people receiving unemployment benefits compared to less than 2 million prior to the pandemic.
Upcoming Economic Reports
- CoreLogic Case-Shiller National Home Price Index
- New Home Sales
- Durable Goods Orders
- Initial Jobless Claims
- Consumer Spending
- Personal Income