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Inside the Economy: Consumer Confidence, Mortgage Rates and US Markets

By May 30, 2024No Comments

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This week on “Inside the Economy”, we discuss consumer confidence, mortgage rates, and U.S. Markets. The May consumer confidence index report shows a higher than anticipated reading. Who is typically surveyed for the consumer confidence index report? As for interest rates, the Federal Reserve Board forecasts rates to decrease to 4% in the next two years. What is the forecast for mortgage rates? Lastly, Foreign investments in U.S. Markets eclipse $25 Trillion. Do countries like Singapore, Australia, or the U.K. have additional monies for future investment? Tune in to learn more!

 

Key Takeaways:

        • Consumer Confidence Index at 102
        • 30-Year Mortgage rate at 6.94%
        • Foreign Investments in U.S. Markets surpass $25T

Full Transcript:
Welcome to another edition of Inside the Economy!

I’m Larry Howes. Thanks for joining me!

Memorial Day is over. We’ve entered into the doldrums of the investing world. If you’re still in New York, starting to head to the Hamptons, if you’ve moved to Miami, well, I guess you’re already there. But things are slowing in the investing world.

So we’ll talk about what is going on or what’s not going on, which is more relevant these days. Very little change in CPI. We’re getting the CPE report Friday. Interest rates haven’t changed. Mortgages haven’t changed. Initial jobless claims really haven’t done anything.

So the great slowdown is still not happening. There are some subtle beginnings that we’ll talk about here in a minute, but you got to start with who works in the wage and hour side, who works in the labor force. And it is clearly more foreign born than it was.

The purple here is the foreign born. As a matter of fact, that particular group of people is lower unemployment than the natural born people, a little higher. It’s just the nature of the beast. The newcomers we’re dealing with are doing a good job in the labor market. Latest consumer confidence report comes out. It’s still kind of optimistic, kind of flat.

Remember, it’s surveys. And surveys have a tendency to be a little skewed. Depends on who you ask. The fundamentals of one of these things is 20% of the top consumers spend more money than the bottom 60% of the consumers. So when you talk to one of them, they’re very optimistic. They’re out buying things.

But the wage and hours side of things isn’t quite so happy in some respects. It starts in California. The high minimum wage has really taken a dent out of California’s budget and it’s impacting a lot of things. It’s impacting a lot of the wage and hour type stores, dollar general, family dollar, a number of them.

There’s about 10 or 15 of them that are leaving California, and a lot of them have decided they’re simply going to close the shop. There has not been a collapse in housing prices, and we probably spend too much time on this. Sales are mediocre at best. Where the interest rates where they are, and I think it’s very likely we’re not going to see an increase in sales or a decrease in the interest rate. It just not in the cards right now.

The Fed has come out and said basically what we need to do is we might start lowering rates towards the end of the year. But they’re targeting going from where we are right now, five and a quarter, no lower than four. The days of going down to zero are not in the cards at this point.

So mortgage rates, if Fed funds go down to four, mortgage is going to be in high fives. You’re just going to have to adapt to that. And there’s no sign that there will be any collapse in price that would otherwise accommodate that. You’re simply going to have to live with a higher level of costs.

The stock market, the Dow and the S&P 500 all, the Dow had record high last week. S&P 500 had a record high last week. Yay! And both of them lasted a matter of minutes before all the selling happened. Triggered all the algorithms and they’re selling out because really neither one of those indices have any business being there. There are just a few companies that are technology driven and growth driven that are driving some of these new prices. The earnings really aren’t there yet and lowering interest rates are not going to drive earnings, especially when 60-70% of the consumers have had to slow.

So the markets are going well, maybe this is going to be as high as we are for a while. And we’re about to start in a very unpleasant political environment. Great that we have new records. Yay! They’re not going to stay there. And you can notice right here that they’ve already started to back off. The rest of the world has not done any better in their equity markets. There’s a fair amount of press saying, gee, go international. Well, don’t bother. This is very indicative. The individual accounts, small business accounts, these are not financial institutions, foreign investments in US equity markets, right at 25 trillion.

Now a lot of these other stock markets aren’t doing that great because the money’s here, money’s not going back and the rest of these economies aren’t doing so great and there’s no prospects that they’re doing so great. Euros should slow a little bit, but it’s still churning forward at a pretty good clip. We won’t see GDP for a little while, but believe me, it’s doing pretty well.
There’s going to be some new issuance. That tan color, that gold, whatever it is, that’s new issuance for the US, the rest of the world, the developed world, they’ll do about a trillion and a half of new bonds. They probably need to because what we’re going to do right now is we have a deficit.

We’re running about a 7% deficit spending and that’s not going to change in anything that happens with who takes over the White House here in November. It’s going to be very Congress dependent. And depending upon what that looks like, what sort of turnover happens, it’s going to be probably issuing more bonds and run a little deficit to keep some people happy.

Now, there’s been a question. I’m happy to deal with yield curves, though it’s still difficult to explain to people quickly. Down here at the bottom was the yield curve, and the yield curve is the yields on the treasuries from 3 month to 30 years down there in the bottom. You know, a few years ago, the three month was basically at zero. Called it free money. The 30 year was all the way at two.

So you got two percentage points for investing out 30 years. The brown line is where we were a year ago. The red is where it is now. Five and a quarter, 5.4 on a 3 month, and the 30 year is out about 4.4. What this tells you, among other things, is when and if the Fed starts lowering rates, they have no motivation whatsoever to lower past four.

If the long term rates stay that high, and it’s likely they will, that will keep mortgages high, fives low, sixes. That’ll keep inflation at two, which is where they want it. It’ll keep the cost of money. Three, three and a half.

We’re headed in the right direction. Just don’t expect any positive or really negative drama in the near future. We just have to get through the summer and then a little political bout and then we’ll know more by the fourth quarter. Send questions along to info@shjwealthadvisors.com.

I appreciate you joining me!

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