Week in Review: June 21, 2024

June 21, 2024

Recap & Commentary

Markets ended the holiday-shortened week modestly higher as investors digested both economic data and comments from multiple Fed officials. After the prior week’s inflation data and Fed meeting, the current week felt relatively quiet. Interest rates, as measured by the 10-Year Treasury yield, ended the week largely unchanged after experiencing a dramatic decline the prior week.

Speaking at a convention on Thursday, Minneapolis Fed President Neel Kashkari expressed frustration with the design of the Fed’s highly scrutinized “dot plot” showing Fed officials’ expectations for future interest rates. In his discussion, Kashkari said, “You’re having to make essentially forecasts that people take very seriously, and you can’t communicate just how uncertain you really are, because you have to put these handful of dots down.” Other Fed members have expressed similar sentiments in recent months.

Across “the pond” the Bank of England (BOE) left interest rates unchanged following its June meeting. That followed a recent split decision by the European Central Bank (ECB), which cut rates at its June meeting, and the US Federal Reserve, which left rates unchanged. Economists now expect the BOE to begin cutting rates in August.

Separately, market odds for a Fed rate cut in September now stand at 60%, up from 46% a month ago. With three months of inflation and employment data to be reported prior to the Fed’s September meeting, those expectations will likely move around a bit reflecting new data as it becomes available.

Economic Commentary

May retail sales rose 0.1%, less than the 0.3% consensus forecast. The weaker growth revived questions about the strength of the consumer and by extension, the broader economy, as consumer activity accounts for ~70% of US GDP.

US business activity in June accelerated to its fastest pace in 26 months, according to industry group S&P Global, led by improvements in both manufacturing and service sector activity. The improved activity resulted in an uptick in hiring. From an inflationary standpoint, both input and selling prices moderated, which according to S&P Global’s Chief Business Economist, brings the survey’s price gauge into line with the Fed’s 2% inflation target.

Reflecting the housing sector’s ongoing challenges, May housing starts fell 5.5% from April to their lowest level since June 2020 as higher mortgage rates continue to hamper demand. Compared to a year ago, housing starts plunged 19.3%. Building permits, viewed as a leading indicator of future building activity, fell 3.8% and 9.3% from April and a year ago, respectively. Recent inflation data has helped lower broader interest rates in June, including 30-year mortgage rates, which if sustained could benefit the housing sector moving into the third quarter.

Existing home sales fell in May for the third consecutive month. Despite the lower activity, the median price rose to a new record of $419.3K, as limited supply continues to pressure prices upwards.

Of Note

Scientists announced the results of a large clinical trial conducted in Africa, in which a new drug, administered twice a year, provided 100% effectiveness against participants contracting H.I.V.

Market Indices   (As of 06/21/2024)

The Week Ahead

• PCE Inflation
• New Home Sales
• Pending Home Sales
• Personal Income & Spending
• Consumer Confidence
• Durable Goods Orders
• Weekly Jobless Claims