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  4. Stocks Fall Despite Strong Economic Data – Market Update

I hope everyone had a good weekend. My team broke quite the losing skid by hitting a walk-off home run in the 10th inning yesterday, so that was exciting!

Economic data last week was decidedly more mixed. Stocks weren’t great, but retail sales came in well. Let’s jump in.

Headline News

Retail Sales

It was a strong month for retail sales numbers in June as they rose 0.4%, a number that remained even as auto sales were taken out. When both cars and gas were taken out, sales were up 0.7%. This number was matched by a control group that isn’t as affected by seasonal ups and downs.

Lower oil prices left sales at gas stations down 2.8% and department stores are also falling off as more and more people take their shopping online.

There’s lots of strength in other areas of the report, though. This was led by auto sales which were up 0.7%. Meanwhile, nonretail sales were up 1.7%. Think of e-commerce when we talk about this group. Restaurant spending was also up 0.9% which shows people currently have plenty of discretionary income.

There were also 0.5% rises in sales for furniture and building materials as well as clothing stores. Finally, health and personal-care stores also saw a 0.5% uptick in activity in June.

Industrial Production

While overall production was flat in June, production in the manufacturing sector was up 0.4% overall. Meanwhile, capacity utilization in factories did drop 0.2% to 77.9%.

The weakness in production numbers came from a 3.6% drop in utility production which is always subject to the moods of Mother Nature. I expect production from utilities to go up in July. The recent heatwave that hit most of the country is finally easing here in Detroit. I know the Northeast is still feeling the heat. Stay cool and safe out there this week!

Getting back into it, there was a 2.9% uptick in motor vehicle production and a 0.7% rise in manufacturing of certain high-tech components. Meanwhile, business equipment production was up 0.5% in June, pointing to stronger business investment. Construction supplies were up 0.6%. Other categories of note included mining, which was up 0.2%.

It’s not expected that anything about this report will change the Federal Reserve’s mind heading into its meeting at the end of the month. Despite today’s strong report, overall production is still only up 0.4% on the year.

Housing Market Index

Sentiment among builders was up slightly in July, rising one point to settle at 65 when numbers were released last week.

Looking at the components, current sales came in at 72, which is again up a single point. Meanwhile, expected sales in the next 6 months were up one point, coming in at 71. Traffic of buyers walking through homes continues to be the downside at 48. However, it’s a one-point gain closer to the breakeven point of 50, which means builders may be seeing a smaller downturn in foot traffic

The West continues to be the star region for homebuilding, up six points in July to 75. In terms of volume, the South is the biggest region for new housing, up a single point to 69. The Northeast came in at 57, with the Midwest bringing up the rear, but nevertheless seeing growth at 54.

MBA Mortgage Applications

Overall mortgage applications were down 1.1%. Refinance applications were up 2%, though applications to purchase were down 4%. Perhaps it was too hot to hit the streets and go to open houses.

Mortgage rates were up eight basis points in this index to 4.12%.

Housing Starts

Housing starts fell just under 1% in June to come in at 1.253 million, just below consensus estimates. Starts of single-family homes were up 3.5% to come in at 847,000, but this is still down 0.8% on the year. Meanwhile, starts of multifamily homes were down quite a bit in the month to come in at 406,000. Annually though, these are up 24.5%.

The weak part of this report comes in future housing permits, which fell 6.6% from this time a year ago. Overall permits fell 6.6% on the month coming in at 1.22 million. Single-family permits were up 0.4% to 813,000, but these are still down 4.7% on the year. Meanwhile, year-over-year, multifamily permits were down 10.2% with numbers for June coming in at 407,000.

In still more bad news for future reports on new home sales, completions of single-family homes were down 1.8% in June to 870,000, while multifamily completions fell 12.9% to settle at 291,000. Tight housing supply won’t get any better with those kinds of numbers.

Jobless Claims

Initial jobless claims increased 8,000 to 216,000 last week. The 4-week moving average of initial claims fell by 250 claims to 218,750.

Meanwhile, in continuing claims data, these were down 42,000 last week to 1.686 million. The average over the last 4 weeks was up 5,000 to 1.701 million.

Consumer Sentiment

In initial readings for July, consumer sentiment was up 0.2 points to come in at 98.4, just shy of consensus expectations for an increase to 98.6. Current conditions were down slightly to 111.1, but expectations moved up to 90.1 to offset this.

Inflation expectations over the next year were down 0.1% to 2.6%, while expectations for price appreciation over the next five years were up 0.3% to match that 2.6% number.

Mortgage Rates

Mortgage rates pushed up a bit last week as the American consumer is spending and generally feeling confident about where things are at. We touch on this often, but good news for the stock market and the rest of the economy tends to be bad news for bonds because when things are good people have more appetite for risk rather than trading in safer assets like mortgage-backed securities. When money leaves the bond market, mortgage rates go up.

With that said, rates are still in a really good spot whether you’re looking to buy a home or refinance your current one. If you’re ready, lock your rate today!

The average rate for a 30-year fixed mortgage was up six basis points to 3.81% with 0.6 points paid in fees. A year ago at this time, the rate was 4.52%.

Looking at shorter terms, the average rate on a 15-year fixed mortgage rose a single basis point to 3.23% with 0.5 points paid. This is down from 4% a year ago.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) with 0.4 points paid was up a couple of basis points to 3.48%. This has fallen from 3.87% last year.

Stock Market

It’s been a wild month for the stock market, and last week was no exception. Microsoft reported better-than-expected earnings, and so did American Express. Weirdly though, the stock from the latter dropped more than 2.5%.

Meanwhile, a spokesperson for the New York Federal Reserve walked back comments by its president, John Williams. Earlier in the week, Williams had said that the Fed would need to take decisive steps to sustain an economic expansion if faced with economic indicators that appeared to be worsening. After the market took that as an indication that Williams might be looking to make moves to lower the federal funds rate quickly, the spokesperson said Williams was making general comments on academic research and not commenting on the current state of the economy or the Fed’s thinking.

When everything settled, the S&P 500 and Nasdaq ended up having the worst week since late May.

The Dow Jones Industrial Average was down 68.77 points on the day to finish at 27,154.2. This was down 0.65% on the week. Meanwhile, the S&P 500 fell 1.23% to 2,976.61, down 18.5 points Friday. The Nasdaq finished the week at 8,146.49, down 1.18% on the week and 60.75 points for the day.

The Week Ahead

Tuesday, July 23

FHFA House Price Index (9:00 a.m. ET) – The Federal Housing Finance Agency (FHFA) House Price Index (HPI) covers single-family housing using data provided by Fannie Mae and Freddie Mac. The HPI is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.

Existing Home Sales (10:00 a.m. ET) – Existing Home Sales tallies the number of previously constructed homes, condominiums and co-ops that were sold during the month. Existing homes (also known as “home resales”) account for a larger share of the market than new homes and indicate housing market trends.

Wednesday, July 24

MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

New Home Sales (10:00 a.m. ET) – This report measures the number of newly constructed homes with a committed sale during the month. This will be the report for January.

Thursday, July 25

Durable Goods Orders (8:30 a.m. ET) – These are based on new orders placed with domestic manufacturers for factory goods.

International Trade in Goods (8:30 a.m. ET) – The Bureau of Economic Analysis has begun breaking out the goods from the remaining international trade numbers to get an idea of import and export estimates for GDP calculations.

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The 4-week moving average of new claims smooths out weekly volatility.

Friday, July 26

Gross Domestic Product (GDP) (8:30 a.m. ET) – This release measures the monetary value of all final goods and services produced within the U.S. This report is released on a quarterly basis.

This week, we get plenty of key data on home prices as well as sales for both new and existing homes. Then there’s the always important GDP measurement of overall economic growth. We’ll have it all covered in next week’s Market Update!

If this just isn’t doing the job to keep you conscious on a Monday afternoon, we have plenty more home, money and lifestyle content to share with you if you subscribe to the Zing Blog below. This week, Jackie Lam shares how spending more on groceries helped save money in the long run. Have a great week!

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