Market Update – June 24th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Monday, June 24th, 2024

Financial Markets

Over the past week, economic data continued to show softness with the release of retail sales, existing home sales, leading indicators, and the Philadelphia Fed’s Manufacturing Business Outlook Survey. As of Friday, June 21st, the Dow Jones Industrial Average led the major indices with a 1.45% increase, making progress toward closing the gap with the more tech-heavy indexes, like the S&P 500 which gained 0.61% last week, and the Nasdaq Composite, which remained flat. In the world of fixed income, the Barclays Aggregate Bond Index fell by -0.16%.

Market News

May Retail Sales. May’s retail sales figures came in significantly below estimates, showing a modest monthly rise of +0.1%, versus the 0.3-0.4% that was expected. Excluding auto sales, which were strong in May, retail sales actually fell by -0.1% for the month. Year-over-year, overall retail sales in May increased by 2.3%, a slowdown from April’s revised pace of 2.7%, down from the initially reported 3%.

Monthly spending dropped notably in several categories: furniture and home furnishings fell by -1.1%, food services and drinking places decreased by -0.4%, and grocery stores also declined by -0.4%. In contrast, spending increased in non-store retailers (online shopping) by 0.8% and in clothing and accessories stores by 0.9% in the month of May. Overall, this month’s cooler retail sales report reflects a gradually cooling labor market and points to the prospect of a soft-landing economic scenario.

Existing Home Sales

In May, existing home sales volumes dipped slightly by -0.7%, despite this, the median price of an existing home sold reached a record high of $419,300, up 5.8% from May 2023. This also marked the highest annual median price increase since October 2022. Compared to a year ago, sales volumes were down -2.8%, while inventory levels also rose, standing at 3.7 months compared to 3.1 months a year ago. Overall, the residential real estate markets continued to show stability even in the face of higher borrowing costs and a slightly softer economy.

Source: National Association of Realtors

Leading Indicators

In May, the Conference Board’s Leading Economic Index (LEI), an index of ten leading economic indicators, decreased by 0.5 percent to 101.2, following a similar drop in April. From November 2023 to May 2024, the index fell by 2.0 percent, a smaller decline compared to the 3.4 percent decrease in the previous six months.

Factors contributing to the decline included weak new orders, diminished consumer confidence regarding future business conditions, and fewer building permits. Conversely, positive contributors to the May LEI were the performance of the S&P 500 and average weekly manufacturing hours. Despite the pace of the LEI’s decline moderating in recent months, the LEI continues to indicate a bearish economic outlook ahead.

Philadelphia Fed Manufacturing Business Outlook Survey

The Philadelphia Fed Manufacturing Business Outlook Survey, a survey of regional manufacturers on various aspects of business activity, resulting in both Current and Future Activity Indexes, where readings above 0 indicate positive conditions, and those below 0 indicate negative conditions. In June, manufacturing activity in the region remained mostly steady, though both the Current Activity and Future Activity Indexes fell. Despite this decline, both indexes remained slightly above 0, indicating a neutral state of the manufacturing sector in the region surrounding Philadelphia, otherwise known as the 3rd Federal Reserve District.

Future activity indicators also remained positive but indicated less widespread expectations for growth over the next six months. 32% of firms expect growth in the coming six months, and 47% expect no change. On the other hand, 26% of firms reported higher input costs, while only 14% reported raising their own prices, suggesting a squeeze on manufacturers’ profit margins.

Source: Federal Reserve Bank of Philadelphia

Economic Indicators

This table highlights a selection of the economic indicators we regularly monitor to assess economic conditions. We will include updates on these indicators in our weekly market summary when there are material changes. A majority of bullish indicators suggest a positive outlook for the US economy, while an increase in bearish indicators signals a higher likelihood of a current or impending economic downturn.

Currently, these indicators suggest a neutral to bullish outlook for the US economy, with some potential for a future recession or downturn of some magnitude, but likely not in the immediate horizon. Employment conditions are stable, albeit cooler than last year, and prices remain a concern for both individuals and businesses. The manufacturing sector shows slow to stable activity depending on the indicator, while the services sector continues to drive economic growth.

Sources: Federal Reserve, The Conference Board, Synergy Asset Management, LLC

Summary

Economic data demonstrated a stable yet softer US economy last week, as May’s retail sales came in below expectations, with several important categories declining. Existing home sales volumes continued to fall, although the median home sales price reached a record high. The Conference Board’s Leading Economic Index continued its downward trend, indicating a bearish outlook, albeit less severe than it appeared a few quarters ago. The Philadelphia Fed’s survey showed stable manufacturing activity but highlighted concerns about future growth. Overall, our outlook remains neutral to slightly bullish, with recession risks suggesting a potential slowdown ahead, though not imminently concerning.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.