The economic outlook at the end of June provided some conflicting signals. While there’s good news, it’s clear that, now more than ever, every strategic investing approach requires careful attention to the details.
The Conference Board Index of Leading Economic Indicators reported a drop of 0.7% in May – the 14th consecutive monthly decline. This, along with stock market turbulence, suggests an economic slowdown is upon us. Despite this, resilience in the housing market and stability in the labor market are painting a more optimistic picture.
Kevin Canterbury of Redstone Capital Management in Arizona takes a closer look at the details most salient to those looking for balanced investment approaches.
An Unanticipated Upturn in the Housing Market
The best news in the recent reports was in housing and employment. Not only did existing home sales see an uptick of 0.2% in May, but housing starts, which signal the commencement of new residential construction projects, jumped a substantial 21.7%. This paints an optimistic picture for the current state of related sectors like construction, retail, and financial services.
Job Market Consistency
At the end of Q2, news from the labor market showed a reassuring steadiness. For starters, initial jobless claims – a kind of early-warning system for economic distress – were unchanged. In other words, the same number of people filed for unemployment benefits as in the previous period, indicating no increase in layoffs or job losses.
At the same time, the ongoing jobless claims, representing those who’ve been receiving unemployment benefits for a while, dropped slightly. This decrease suggests that some people have returned to work.
A Global Market Stirred by Interest Rates
The stock markets saw the most turbulence, with major U.S. indexes like the Dow Jones, S&P 500, and NASDAQ registering their first negative week in nearly two months. This downward movement was in part triggered by Fed Chair Jerome Powell hinting at an impending rise in interest rates.
Internationally, the strengthening U.S. dollar posed challenges for global markets. The decision by UK, Norway, and Switzerland’s central banks to raise interest rates also exacerbated fears of a possible worldwide recession.
Bonds, Commodities, and the Balance of Markets
The bond market showed resilience, however, as yields remained steady for the most part. However, the yield inversion between 3-month and 10-year Treasury notes signaled a shift that investors will certainly want to keep their eyes on, since this often precedes an economic downturn and an uptick in short-term interest rates.
The commodities market further complicated the picture as oil prices fell, driven by fears of such a recession. A reduction in energy costs for consumers and businesses could stimulate spending in other areas.
That’s not the whole picture, though. Natural gas prices climbed due to the heightened demand caused by a heatwave. Higher utility bills for households and businesses could dampen consumer spending.
Summary
Economic indicators give us reason to exercise caution and encourage proactive strategies to mitigate potential risks. A strong housing market and steady jobs report show us that there’s plenty of opportunity for growth, even if the prospect of rising interest rates may influence investment decisions.
