Inflation eased slightly more in June as prices continue to slowly come down on a year-over-year basis. The CPI (consumer price index) released midweek, showed that inflation increased only 3% from a year ago, which is the lowest level since March 2021. With only marginal gains in food prices, other areas like used cars and airline prices have dropped, allowing consumers more discretion in their spending habits. Housing remains the “mystery” (not really in my opinion) as rents remain elevated and inventories stay constricted. “Housing costs, which account for a large share of the inflation picture, are not coming down meaningfully,” said Lisa Sturtevant, chief economist at Bright MLS. “Because rates had been pushed so low by the Fed during the pandemic and then increased so quickly, the Federal Reserve’s rate increases not only reduced housing demand — as intended — but also severely limited supply by locking homeowners into homes they would have otherwise listed for sale.” I just don’t see a scenario, at least not today, that would change this narrative in any meaningful way in the next year or two. New home buyers are being forced to make decisions in this environment that they may not like, but as I often like to say, “It is what it is”.
With the halfway point of the year upon us, the economic dashboard might look more interesting than we previously expected.
Chief Investment Officer of Kestra Investment Management, Kara Murphy, provides a nice snapshot and midyear recap (video) here: https://www.kestraim.com/market-insights/071123_mwm_midyear that I would invite you to watch as well. It seems clear that the continued strength of the consumer has been a surprise and something that many were not expecting. With the labor force remaining gainfully employed and wages still on the rise, the resiliency of our wallets has shown through. The proverbial ball now sits in the Federal Reserves’ hands. It is expected that at least another ¼ point interest rate increase is on deck. Beyond that is the great unknown.
Second quarter earnings will start in earnest in the week ahead. Expectations are varied, but if this year has shown us anything, it’s to expect the unexpected. With so much rightsizing being done over the last year, many companies have positioned themselves for better margins and profitability going forward. We would expect to see that trend continue as the interest rate pressures ease further allowing companies to plan better for the future. Capital expenditures have been lower but with more clarity on the horizon now, that trend should reverse as well. The July preliminary consumer sentiment reading was released this morning showing the strongest levels in nearly two years. The University of Michigan’s consumer sentiment index rose to a reading of 72.6 in July, according to preliminary data. That’s better than consensus calls for 65.5 and June’s reading of 64.4. Consumer sentiment reached its best reading since September 2021. It is now about halfway between last June’s historic low reading of 50 and the February 2020 reading of 101. This economic indicator measures how optimistic consumers feel about their finances and the state of the economy. “The sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets,” said Joanne Hsu, director of consumer surveys at the University of Michigan. The pieces are in place, in my view, to narrowly avoid a recession. With one more quarter point rate hike a near certainty, and factored into the markets today, the next few weeks will be pivotal to how the rest of the year plays out. Tick, tock goes the clock. We hope your summer is going well and that you have the ability to enjoy some much-needed vacation time. This summer feels much more normal on many levels! We are staying busy here at Mosaic, planning and preparing as usual. As always, let us know if you need anything!
Christopher E. Wasson, CFP®
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.