Wait - So Recession Is Still Possible?
About Those Pending Home Sales...
The majority of data the markets got this week confirmed the idea that the U.S. economy is continuing to slow. The 2nd estimate of Q1 GDP was revised down from 1.6% to 1.3%. Pending home sales dropped by nearly 8% month-over-month, the single biggest monthly decline since February 2021. Personal spending rose less than expected in April. The good news for rate watchers, however, was that PCE inflation in April also came in slightly under expectations. All of this was supportive of the idea that the Fed could still have some room to cut interest rates later this year and that resulted in long-dated Treasuries rallying by nearly 2% over the final two days of the week.
Utilities, yet again, beat the S&P 500 by a wide margin last week, gaining 1.6% compared to a -0.6% increase for the index. Its strong finish to May also made it the top-performing S&P 500 sector for the month with a return of 9%, topping the roughly 7% gains of tech and communication services. This remains one of the weirder market anomalies - the S&P 500 and Nasdaq 100 continuing to push towards new all-time highs, yet utilities is the sector performing better than any other. I maintain that we need to look at the entire market picture to judge true market health instead of just the mega-cap driven indices. If we look more broadly, the lumber/gold is still suggesting risk-off conditions. Utilities are performing very well. Long bonds gained about 3% on the month with the 10-year yield dropping by about 20 basis points. Those are still some pretty strong signals that are continuing to indicate on a weekly basis that defense is still in control. Yes, the S&P 500 and tech stocks had a good month, but don’t be blinded by their returns. I’m still seeing weakness in the financial markets and the data may be starting to catch up.
Keep reading with a 7-day free trial
Subscribe to The Lead-Lag Report to keep reading this post and get 7 days of free access to the full post archives.