Market Update – October 20th, 2023

Author:  Joe Maas, CIO SPG Advisors LLC

Financial Markets
This week came with retail sales figures, residential real estate data, and a 10-month low in initial claims, alongside geopolitical developments. By the market’s close on Thursday, October 19th, the Dow Jones Industrial Average declined by -1.68%, the S&P 500 dropped -2.19%, and the Nasdaq Composite slipped -2.81%.
Market NewsRetail Sales. September Retail Sales data rose more than twice as much as expected at a monthly increase of +0.7%, amounting to an annual increase of +3.8% from a year ago. Notably, non-store retailers saw an +8.4% increase from a year ago, while food services and drinking places also saw a +9.2% increase since September 2022. These figures suggest that consumers are maintaining their spending habits, even in the face of increased reliance on revolving credit and declining savings rates.
Housing Permits, Starts, & Completions. At the same time that existing housing supply remains tight as owners stay in their homes longer with lower mortgage rates, new construction faces limitations as well amidst higher financing costs. September housing permits clocked in at 1.473 million, down -7.2% from a year ago, while housing starts echoed a similar sentiment at 1.358, also down -7.2% from a year ago. Completions, however, were up +1.0% from a year ago at 1.453 million. The minimal increase in new properties, paired with higher prices and 30-year mortgage rates hovering around 8%, poses significant challenges for homebuyers.
Leading Indicators. The Conference Board’s Leading Economic Index fell by -0.7% in September, following a -0.5% drop in August. Over the past six months from March to September 2023, the LEI decreased by -3.4%, marking an improvement compared to the -4.6% contraction in the preceding six months (September 2022 to March 2023), but overall, still telling a bearish story for the economy.
Key contributors to this decline include average consumer expectations for business conditions, the ISM Index of New Orders, the 10-year US Treasury less the Fed Funds rate spread, and the Leading Credit Index. This September decrease marks another monthly decrease in the LEI, that we’ve seen consecutively since April 2022, not a great sign for near term economic conditions to come.
Existing Home Sales. As expected, September Existing Home Sales continues to demonstrate lower volumes moving in the residential real estate market amidst a backdrop of higher home prices and much higher financing costs. Existing home sales totaled 3.96 million in September, down -2.0% from August, and down -15.4% from September 2022. Additionally, the median sales price rose only +2.8% from a year ago to $394,300. Ultimately, September’s Existing Home Sales reflect the ongoing challenges of the real estate market, characterized by lower volumes, elevated home prices, and increased financing costs.
Initial Claims. Thursday morning, the US Department of Labor reported initial claims at the lowest level since January at 198,000 for the week ending October 14th, bringing the four-week moving average to 205,750. This comes amid ongoing economic concerns, despite the robust state of the labor market.
Historically, leading up to a recession, initial claims typically start at a low point before experiencing a rapid increase. However, it’s important to note that this “low” point usually falls within the range of 250,000 to 350,000, significantly higher than the 198,000 claims recorded this week. In any case, labor markets have the ability to move quickly, so we will continue to monitor economic data closely as it rolls out.
Throughout this week we saw September retail sales exceed expectations, indicating robust consumer spending. On the other hand, September housing permits and starts declined from a year ago, presenting challenges for homebuyers with elevated financing costs and limited supply. The Leading Economic Index raised ongoing economic concerns, while September Existing Home Sales declined from a year ago with a very modest gain in home prices. We also saw initial claims reach a 10-month low last week, underscoring the strength of the labor market. We look forward to continuing to actively monitor markets in this unique environment.

We appreciate your continued trust.

Thank you,Joseph M. Maas,

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.

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