Housing Market Sizzles: Prices Soar, Inventory Surges (Weekly Cheat Sheet)

As the renowned investor Peter Lynch once said, “The real key to making money in stocks is not to get scared out of them.” This week, investors who held their ground were rewarded as the major indices logged gains in a shortened trading week.

The S&P 500 broke through the 5,500 level for the first time, setting new records on light volume for most of the week. Bond and equity markets took a breather on Wednesday for Juneteenth, while Friday’s session saw a surge in activity due to the quadruple witching options expiration.

The gains were spread across various sectors, with the equal-weighted 500 outshining the market-cap weighted S&P 500, rising 1.2% compared to the index’s 0.6% increase. Only a trio of S&P 500 sectors ended the week in the red: real estate (-0.3%), information technology (-0.7%), and utilities (-0.8%). Consumer discretionary stocks stole the show, soaring 2.5%, with energy (+1.9%), financials (+1.7%), and industrials (+1.9%) also putting up impressive numbers.

While recent weeks have seen mega-cap names leading the charge, this week witnessed a shift in buying activity to other corners of the market. Some heavyweight stocks experienced notable declines, likely due to a lingering desire for consolidation. NVIDIA (NVDA) slipped 4.0% from the previous week, and Apple (AAPL) fell 2.4%. Rising Treasury yields didn’t seem to faze stock market buyers, with the 2-yr note yield settling five basis points higher for the week at 4.73% and the 10-yr note yield also climbing five basis points to 4.26%.

US Market Highlights

  • Home prices reach new heights, with the median selling price jumping to $419,300 in May, a nearly 6% year-over-year increase. Inventory levels saw a significant boost, rising 7% from April and 19% from the previous year.
  • Housing starts plummet to a four-year low, dropping 5.5% during the month to an annualized rate of 1.27 million homes. High financing costs and weakening demand have prompted home builders to scale back on new projects.
  • U.S. business activity soars to a 26-month high, with the S&P Composite PMI climbing to 54.6 in June. Strong demand and easing inflationary pressures indicate robust economic momentum, according to businesses surveyed.
  • Retail spending falls short of expectations in May as consumers continue to grapple with stubbornly high inflation. Retail sales inched up a mere 0.1% during the month and 2.3% year-over-year.
  • U.S. takes Adobe to court over subscription plan disclosures, alleging that the tech giant failed to adequately disclose substantial termination fees and made the cancellation process difficult and confusing.
  • Apple pulls the plug on its ‘buy now, pay later’ service just a year after its launch. The tech giant will now allow Apple Pay users to secure BNPL loans through Affirm as part of a new partnership.
  • EV startup Fisker seeks bankruptcy protection as it attempts to salvage its operations by selling assets and restructuring its debt. AdobeAlphabet’s Google, and SAP are among the company’s largest creditors.
  • Chegg announces significant job cuts in the restructuring plan, causing shares to skyrocket over 20%. The education technology firm plans to reduce its global workforce by 23%, affecting approximately 440 employees.

Global Highlights

  • Russia and North Korea entered into a defense pact as part of a ‘comprehensive strategic partnership.’ Officials express concern that North Korea may seek support for its nuclear weapons program in exchange for assisting Russia’s war in Ukraine.
  • China’s central bank maintains its key policy rate, aligning with market expectations. The PBOC also suggests restarting Treasury bond trading to help manage liquidity and enhance policy flexibility.
  • Bank of England keeps rates steady but hints at potential cuts in the near future. Despite inflation easing to the 2% target, the BOE maintained rates at 5.25%. Analysts anticipate a possible cut by November.
  • Japan’s inflation climbs to 2.8% in May, fueling predictions for rate hikes despite sluggish wage growth. The increase was primarily driven by higher electricity bills, with inflation persisting above the 2% target for more than two years.
  • Europe’s recovery loses steam amid political uncertainty, with the eurozone PMI dipping to 50.8 in June. Surprise elections in France have led to declining orders for businesses, impacting overall economic growth.
  • Canada’s housing starts reached a seven-month high of 264,506 units in May, a 9.7% increase from April. Ontario and Quebec spearheaded the surge, offsetting declines in British Columbia. Government incentives aim to tackle the housing shortage.

Commodities & Crypto Corner

Energy: Oil continues its upward trajectory this week, posting a weekly gain of around 3.60%. The outlook for crude prices is brightening: lower US inventories, a resurgence in fuel demand, and expectations of a more accommodative Fed monetary policy are all contributing to the rise in oil prices. Simultaneously, geopolitical tensions are once again adding a risk premium to the market, particularly the escalating tensions between Israel and Lebanon’s Hezbollah. Brent crude is trading higher at around $85.5, while WTI is hovering around $81.

Metals: Unlike oil, metals are still struggling. The sector cannot rely on its primary catalyst, Chinese demand, which has been inconsistent. The latest Chinese economic data on the country’s manufacturing sector failed to provide much clarity, with industrial production rising 5.6% last month but falling well short of the consensus forecast of +6.2%. Copper is trading at $9858 per tonne in London (cash price). In the precious metals space, gold is gradually climbing to $2366 per ounce.

Crypto: Bitcoin (BTC) has experienced a two-week decline, shedding nearly 9% over the past 14 days. Since Monday, the crypto-asset has dropped 4.5% and is currently trading around $63,700. Ether (ETH) is also down 3.8%, despite relatively positive regulatory news. The U.S. Securities and Exchange Commission (SEC) has concluded its investigation into Consensys, a leading company in the sector that manages Metamask, one of the most popular unhosted wallets. Some experts believe this could indicate that ether will be classified as a commodity, similar to bitcoin, rather than a “financial security,” which would alter the regulatory landscape and the procedures companies must follow. Despite this seemingly “good news,” ether has fallen slightly less than bitcoin this week but has now declined for four consecutive weeks.

Calendar – The Week Ahead

Inflation will be in the limelight next week as market participants eagerly await Friday’s U.S. personal income and outlays data for May. This report will include a reading on the core personal consumption expenditures (PCE) price index, widely regarded as the Federal Reserve’s preferred inflation gauge. Economists anticipate core PCE to increase by 0.1% M/M and 2.6% Y/Y, signaling a slowdown on both fronts compared to April. U.S. economic growth will also be under scrutiny on Thursday, with the second estimate of Q1 gross domestic product growth set for release.

Turning to the earnings calendar, several major players are scheduled to report. The world’s largest cruise line operator, Carnival (CCL), and global economic bellwether FedEx (FDX) will share their quarterly results on Tuesday. They will be followed by Betty Crocker and Cheerios parent General Mills (GIS) and memory chipmaker Micron Technology (MU) on Wednesday. Pharmacy chain Walgreens Boots Alliance (WBA) and the world’s largest shoemaker Nike (NKE) will round out the week with their reports on Thursday.

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