The headlines over the past week were all about rising costs and recessionary fears, as weaker than expected first quarter retail sector earnings trickled into our markets. Target, Walmart, Lowe’s, and Home Depot, all indicated that consumers are indeed beginning to alter their spending habits. Items from TVs to bicycles saw higher markdowns and increased shipping cost as the inflationary concerns continue to challenge our markets. Inventory levels on certain goods are also starting to elevate slightly. While the supply chain issues overall have remained persistently inconsistent, consumer demand and habit changes will play a large role in the economic uncertainty ahead of us. Corporate profits and expenses will remain challenged in the near-term as companies navigate these turbulent waters.
Existing home sales for April were lower, coming in slightly below estimates. This is the third consecutive month of lower numbers, further confirming that the housing market is indeed beginning to cool off in certain areas. Higher home prices along with higher mortgage rates are the primary factors contributing to the decrease. Home inventories also showed a slight increase as it is widely expected that home sales are quickly going to return to the pre-pandemic levels, we had been accustomed to. This shouldn’t come as a surprise to any of us as the record setting pace over the last two years is just not sustainable. I wouldn’t characterize this as a housing bubble or in any way similar to the financial meltdown, but more of systematic shift based on the underlying economic fundamentals. Buyers are simply tired of overreaching at this point.
The brief relief rally we saw early in the week, quickly gave way to a return of the selling pressure. Many of the highly oversold stocks, particularly in the technology sector, attempted to make a rebound before an abrupt turnaround on Tuesday. There are many economic and behavioral hurdles we need to clear before we truly see a change in the momentum. We are now in a period of a “back to basics” mentality as we approach the investing world. This means staying focused on those companies with solid balance sheets and seasoned management teams. Consumer sentiment is clearly shifting to “needs” rather than “wants”. This is completely normal when uncertainty arises. The market is reacting to the steady stream of headlines thus creating the volatility we are seeing. This can be hard to stomach, but we must trust the process. We are invested with and alongside of you. Wealth is built and created over years of sound investing and planning. That’s why it remains important to stay connected with us and check-in as your personal situation evolves. Hang in there!