This week on Inside the Economy, we address consumer attitudes and market trends, specifically considering the S&P 500 entering correction territory. Revolving consumer credit as a percentage of disposable personal income is hovering around 6%, which has historically been considered a healthy level. Mortgage debt as a percentage of GDP continues to stay on track. What is the current level of foreclosures in the housing market compared to 2008? Are trends in auto delinquencies showing signs of concern? The S&P 500 has reached correction territory but may have also entered oversold territory. Could the correction be a sign of trouble, or simply volatility? Looking at the timeframe from election day to now, treasuries are now beating stocks. How might future Federal Reserve meetings impact treasuries? Tune in to learn more!
Key Takeaways:
- U.S. Core CPI at 3.1 (YOY)
- 30-year Mortgage rate at 6.65%
- S&P 500 1-year return of 10%
Full Transcript:
Welcome to another edition of Inside the Economy!
I’m Larry Howes. Thanks for joining me!
Well, I’ll talk a little bit about some of the bad news you hear in the media these days. Do it first from consumers and then where we are, where the S&P500 is in correction territory. Now, fundamentally, the numbers are very good. ISM numbers are up. CPI numbers, headline CPI, core CPI, true measure of inflation, both down. Even with the layoffs in the government.
Initial jobless claims are down, if not stable. All the yields basically in the bond market are down. And when yields go down, that means the price went up because people are buying them, mortgages are down. It’s not a bad environment. It’s not the beginning of a bear market when the financial side of things is in trouble. That’s clearly not the case at all. Involuntary separations.
If you have a government job, you might get this kind of notice. They’ve crept up a little tiny bit. And this has included some hints. Really doesn’t have the numbers of the actual government employees in there yet, but it’s very stable, 1.1%, not bad. Layoffs. There are very few scheduled layoffs in the near future.
Revolving consumer debt. There’s really a lot of rumors about the consumer sentiment being bad. And I’ll remind you that consumer sentiment is basically a poll. And they can have as few as 15 people answer the poll that comes up with a consumer sentiment number. It’s not the most accurate measure out there. And it has said the consumer has really slowed their spending.
Well, what the consumer’s done is they really haven’t slowed their spending. They quit using their credit cards. Once again, revolving consumer debt is down. Credit card balances are okay, not growing. Value of homes continues to grow.
The home market, the whole entire housing market, which is a very great indicator of what’s going on in the economy and how the consumer is doing is not correcting. Don’t think for a minute that these prices are going to come down dramatically just about anywhere they’re not. And mortgage debt to GDP has gone down once again.
There is some new mortgage debt out there, even though there have been a lot of transactions. More, all cash, more large cash down, so on and so forth. That market is not coming apart. Delinquency rates, single family homes, serious delinquencies, you know, prospective foreclosure stuff. Less than 1%. It’s a good number. It’s been down there for a while. Not unlike 2008 and 2020. It’s down and it’s not people Aren’t walking away from their homes. Too much equity in them like the previous slide. Way too much equity in them.
There is a slight rise. It’s more a return to the normalcy and auto delinquencies across the economic board and credit scores across the board. 6 is about 6%. I mean that’s built into the system. We’re just getting back there after their forbearance in 2020 when if you didn’t pay your bill, you just said, well, I didn’t have to kind of thing anyway. Just like college debt, it’s returning to normal but not dramatic.
S&P 500, the Dow, the NASDAQ, all of that stuff. And we’ve talked a while now that we’ve been overvalued. Well, we’re not overvalued anymore. It’s interestingly enough that all parts of the equity market did their correction. It took them two weeks to do it. Very, pretty fast. Not a record, but it’s pretty fast. We’ve gotten down to right where earnings pretty much justify these valuations. We’ve had to do this, we’ve talked about this before. We got down into oversold beginning of correction territory got done there last week. And of course being immediately all the algorithms signal buys, which is exactly what they did.
There’s been a lot of volatility because the markets went down. There’s a lot of volatility because the markets went back up. And they’re sort of wandering along today. It’s not the beginning of a bear market. It’s not oh tragedy here. The rest of that stuff, a lot of the real bad news is fundamentally political. So just take it with a grain of salt.
Yields have gone down. Yields have gone down on everything again. When yields go down, the price of these bonds has gone up, yields are down everywhere. People are buying more bonds, they’re buying a lot of bonds. They see some problems or whatever it is in the stock market and they went over on the bond side. Except for the three month which is right up there. Because the chances of the Federal Reserve lowering their rates is about 18%. Right now, there’s no…. With inflation coming down, consumer spending okay, mortgages getting cheaper, house valuations staying high, which is all good news.
The Fed still has very little reason to lower rates more to put more stimulus into the economy. It just isn’t there. So the three month T bill is still pretty high. As a matter of fact, last week about a billion and a half went into the zero to three month.
Technically, it’s a note, not A bill pretty good interest rate out of the stock market will sit there for a while and they’re happy to sit there. This is a classic delightful, nice correction. The economics are good. They’re not bad. Interestingly enough, bonds have beat the stock market now since election day. I’m sure this is a part of a political thing, but it’s true. And bonds should do that every now and then.
We have returned to a re-evaluating our own industries phase and it’s very positive. US Industry is slowly adjusting back to being dependent on a very short supply chain. Mexico’s lost some of its luster. Canada is going to have to rethink a number of things. We’re doing it more and more here and it doesn’t seem to be a problem paying a little more for it.
The fundamentals of globalization as it was so popular even five years ago are basically over. Good stock market in Germany, military suppliers, military manufacturing, which goes through all of Europe because Europe is going to be more responsible for what’s going on with Russia and Ukraine. So their stock is up. They just don’t have any earnings yet. But the responsibility has shifted.
Don’t view any of this as bad news. It’s not. It’s not dangerous, it’s unpleasant. Oh, it’ll be a bad first quarter, but the fundamentals underneath it are still very good. And as always, have any questions, send them along to info@shjwealthadvisors.com and I’d be happy to deal with it. I’ll see you next time!
