11/22/24: Financial Markets Calm Before Thanksgiving

Financial markets assumed a less volatile tone this week as we approach the Thanksgiving holiday. Economic data was light but provided a few key updates on the housing market and the consumer.  

Starts of new homes in October fell 3.1% to 1.31 million units at a seasonally adjusted annual rate from 1.35 million units in September. Some housing starts may have been delayed by the impacts of Hurricanes Helene and Milton as resources were diverted to disaster recovery efforts. However, the decline also reflects less demand for new single-family homes with mortgage rates on the rise again and more available existing homes on the market. Sales of existing homes in October increased 3.4% to 3.96 million units at a seasonally adjusted annual rate. The level is up 2.9% compared to October 2023, which is the first year-over-year increase since July 2021. Inventory has been increasing marginally, with the supply of homes still at a relatively low 4.2 months. Affordability remains constrained with the median existing home price at approximately $407,200, and the Freddie Mac 30-year fixed rate mortgage averaging about 6.8% in November.

Both Walmart and Target posted earnings this week, providing insight into the health of the U.S. consumer. Walmart’s sales and earnings beat expectations, with a strong outlook propelled by demand from consumers searching for value. Transaction growth was driven largely by upper-income households making at least $100,000 a year. On the other hand, Target missed forecasts as flat sales and a buildup in inventory in preparation for the U.S. port strike damaged profitability. Executives from both companies highlighted a more cautious and selective consumer spending less on nonessential items. Upcoming Black Friday and Cyber Monday sales will provide further insights into the outlook for holiday spending.

The University of Michigan’s final November Consumer Sentiment Index edged up 1.3 points from a month earlier to 71.8 but fell short of expectations and the preliminary reading of 73.0. The survey reflected substantial uncertainty over the future implementation of Trump’s economic agenda. The report also showed 1-year-ahead inflation expectations eased to 2.6%, while expectations over the next 5 - 10 years rose to 3.2% from 3.0% last month. Broadly, inflation expectations remain well-anchored.

Market volatility moderated this week, with U.S. Treasuries remaining rangebound. As of this morning, the 2-year treasury was trading at approximately 4.36%, the 5-year at 4.30% and the 10-year at 4.41%. Although the post-election euphoria has waned, equities continued to trend higher. Looking ahead to the holiday-shortened week, investors will digest key data on inflation, economic growth, and the FOMC’s outlook.

Next week: CFNAI, Dallas Fed Manufacturing Activity, Philadelphia Fed Non-Manufacturing Activity, FHFA House Price Index, S&P CoreLogic Case Shiller 20-City Index, New Home Sales, Conference Board Consumer Confidence, Richmond Fed Manufacturing Index, Dallas Fed Services Activity, FOMC Meeting Minutes, GDP, MBA Mortgage Applications, Durable Goods Orders, Jobless Claims, Personal Income/Spending, PCE, Pending Home Sales, Advance Goods Trade Balance, Wholesale Inventories, Retail Inventories, MNI Chicago PMI

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