Investors Are Waiting For Powell’s Speech; Economic Data

Powell’s Speech

His appearance follows several stronger-than-expected economic reports yesterday that may not be compatible with the Fed’s fight against inflation. In particular, Consumer Confidence in June rose to the highest level since January 2022, before the Fed began its tightening campaign. Importantly, that included an increase in consumers’ assessment of the job market, with 46.8% of respondents saying that jobs were plentiful, up from 43.3% in May. That has some Wall Street insiders concerned that the economy may have added a lot more jobs in June than what some are anticipating.

Keep in mind, hiring in May came in far stronger than expected with companies adding +339,000 jobs. The Fed has consistently pointed to the tight labor market as a key contributor to stubborn inflation and some believe the central bank may be intent on pushing the economy into recession in order to bring the job market back into balance. The positive takeaways from the report included a decrease in inflation expectations, which the Fed tracks pretty closely, as well as a decrease in consumers planning to make big-ticket purchases and travel domestically.

Economic Data

If consumers are correctly predicting their vacation plans, that could help slow down inflation in the services sector. Also showing surprising strength was New Home Sales for May, which +12.2% month-over-month and +20% compared to last year. The good news is that the median sales price declined -7.6% year-over-year to $416,300. Additionally, the S&P Case-Shiller Home Price Index for April, also released yesterday, showed declines in the 20-city unadjusted index, which fell -0.2% from year-ago levels. It was the first year-over-year price decline since April 2012. However, the seasonally adjusted measure – which some economists believe is a better indicator of which direction the market is trending – showed a +0.9% increase for April.

Many bears believe the strong housing market is becoming a bigger problem for the Fed and may be something beyond its reach as far as the fight against inflation. Economists estimate the US market is short anywhere from -4.5 million to -6.5 million homes, which means sellers still have the upper-hand as far as pricing power, despite the significant rise in mortgage rates. And while Existing Home Sales have slowed this year, recent data indicates that buying activity seems to just be shifting to the new home market rather than declining across the board.

Today, economic data includes advance reads on Retail and Wholesale Inventories, as well as International Trade. General Mills and Micron Technology report earnings results today.