WINNING WEEK:  Despite a decline on Friday, stocks had a winning week in the U.S. and abroad.  Sometimes when sentiment is gloomy, all it takes is data that shows things aren’t as bad as we thought to ignite a rally.  Although not great, second quarter earnings reports have been better than the low expectations of the bears.  This has caused some to jump in and buy stocks in quality companies that look too attractive at their current price.  The decision of Russia to keep the natural gas flowing through its pipelines buoyed European stocks.  The black cloud of inflation and next week’s meeting of the Federal Reserve will be on investors’ minds going into next week.

LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  

EUROPE IS FINALLY RAISING INTEREST RATES:  Last week, the European Central Bank raised interest rates by one half of a percentage point.  This increase brings its interest rate to zero (it had been negative).  Europe is facing a war, a looming energy crisis resulting from that war, inflation, and political instability (Italy’s government just fell for example).  

HOUSING SALES SLOW, AND INVENTORY STILL LOW, BUT IMPROVING:  In June, sales of existing homes in the U.S. were less than in May by 5.4%.  This is the fifth month in a row for existing home sales going down.  Inventory is increasing, but still historically low.  At the end of June, inventory was 1.26 million units.  That is 9.6% higher than May and 2.4% higher than a year ago.  
(Source: nar.realtor/newsroom/existing-home-sales-slid-5-4-in-june)

HOUSING PRICES STILL RISING:  The median price for an existing home in the U.S. in June was $416,000.  That is 13.4% higher than a year ago.  With mortgage rates higher along with prices, affordability is going to be a greater challenge.  However, in June, homes in the U.S. stayed on the market for an average of 14 days.  That is down from 16 days in May and 17 days in June 2021.  88% of homes sold in June were on the market for less than a month.
(Source: nar.realtor/newsroom/existing-home-sales-slid-5-4-in-june)

CHINESE HOUSING PRICES ARE DECLINING:  The Chinese construction market has had many years of boom times.  Now property prices are declining.  New home prices fell in June for the 10th straight month.  Many Chinese developers are in default on their debt.  The main problem seems to be that China overbuilt for years.  Many units are now unoccupied investment properties for citizens who already have primary residences.  But China’s population appears to have peaked and will likely soon decline.  As a result, it is also likely that China’s property demand has peaked due mainly to an aging population as happened in Korea and Japan.  China may well be heading into a demographic crisis with too many older citizens, a distressed pension system, and not enough new births to support near-future taxation.  As an example of where it will hit home, in China, 30% of local government revenues come from land transfers.  If sales decrease, municipality income decreases putting all sorts of municipal jobs in jeopardy (and slowing the housing market even more).

UK INFLATION WORSE THAN USA:  The U.K. announced last week that it’s inflation rate has risen to 9.4%, a pickup from the 9.1% rise registered in May.  The Bank of England is projecting the rate of inflation to top out at 11%.

PROFESSIONAL INVESTOR SURVEY SHOW BEARISH MOOD:  Bank of America conducted a survey of fund managers.  The results showed that this population is as pessimistic as they have ever been with 58% of managers taking lower than normal risks, a record that surpassed the survey’s 2008-09 financial crisis levels.  Of course the participants said inflation is the biggest risk.

VERY INTERESTING BOOK:  In response to one of my emails a couple of months ago, a reader sent me a book recommendation, Stolen Focus by Johann Hari.  I read it at the beach a couple of weeks ago.  It is written by a journalist who set out to answer the question of why we can’t pay attention.  The author interviewed lots of experts in various fields and even did his own three month experiment with no technology.  The culprits he identifies are broader than you might think.   He identifies the ones we might suspect, such as the myth of multi-tasking, the rise of exhaustion and stress, and social media.  But he also delves into diet, pharmaceuticals, and the way we currently raise children (confined physically and psychologically).  As an example of how he approaches his subject with interviews and data, he spent a couple of chapters on social media and the algorithms they use to keep you engaged on the site.  Says Hari:

“On average we will stare at something negative and outrageous for a lot longer than we will stare at something positive and calm.  You will stare at a car crash longer than you will stare at a person handing out flowers….Scientists have been proving this effect in different contexts for a long time–if they showed you a photo of a crowd, and some of the people in it were happy, and some angry, you would instinctively pick out the angry faces first….A major study at New York University found that for every word of moral outrage you add to a tweet, your retweet rate will go up by 20 percent on average, and the words that will increase your retweet rate most are ‘attack,’ ‘bad,’ and ‘blame.’  A study by the Pew Research Center found that if you fill your Facebook posts with ‘indignant disagreement,’ you’ll double your likes and shares.  So an algorithm that prioritizes keeping you glued to the screen will–unintentionally but inevitably–prioritize outraging and angering you.  If it’s more enraging, it’s more engaging.” 

The author tried to focus a bit at the end on potential solutions, but in identifying the issues to more people, I think he is already onto one part of the solution:  awareness.  We can’t protect ourselves and improve our ability to focus unless we understand the forces at work to take it away.

TOUR DE FRANCE WIDOW:  I’m not much of a cyclist.  In fact, my bike has a lot of dust on it right now.  And yet, I am enthralled with the annual three week bike race in France.  I love the strategy, the courage, the technology, the training and the sheer endurance and heart it takes to succeed.  I also respect those cyclists who give up their chance of individual glory to help their teammates win.  My wife Deb is not shy about saying how much she is totally bored by the whole thing.  DVR has been a marriage saver in our household.  

TITHING TO A STRANGER: We often work with clients who are receiving inheritances.  Recently, a woman in Texas received a large inheritance.  She decided to go to a local bar and buy everyone a round of drinks.  That is a very generous thing to do with found money.  But she didn’t stop.  It turned out that her bartender was a single mom of a teenager son who was getting ready to go to Texas A&M.  This bartender, Chelsea Lantrip, lives paycheck to paycheck like so many Americans.  When paying the bill for the round of drinks, the patron added a $1,000 tip.  Chelsea began to cry, and then the patron decided that wasn’t enough, and left her a $4,000 tip on a $179 bar bill.  The patron had decided ahead of time that she wanted to take some of the inheritance money and “tithe it to a stranger.”  Some time next week, someone will probably win close to $1 billion in the Mega Millions lottery.  If one of my readers wins it, tithing to a stranger sounds like a great idea!  But in fact, on a lesser scale, tithing to a stranger sounds like a rewarding thing many of us could do.

Have a great week!

“One day, James Williams–the former Google strategist I met–addressed an audience of hundreds of leading tech designers and asked them a simple question: ‘How many of you want to live in the world you are designing?’  There was silence in the room.  People looked around them.  Nobody put up their hand.”  Johann Hari, Stolen Focus, 2022, p. 123

“[W]hatever is true, whatever is noble, whatever is right, whatever is pure, whatever is lovely, whatever is admirable—if anything is excellent or praiseworthy—think about such things.” Philippians 4:8

SOURCES: 
PROFESSIONAL INVESTOR SURVEY SHOW BEARISH MOOD:  advisorhub.com/bofa-survey-shows-full-investor-capitulation-amid-pessimism/
EUROPE IS FINALLY RAISING INTEREST RATES: wsj.com/articles/ecb-raises-rates-by-half-a-percentage-point-11658406446
CHINESE HOUSING PRICES ARE DECLINING: barrons.com/articles/apple-earnings-stock
UK INFLATION WORSE THAN USA:  https://www.wsj.com/articles/u-k-inflation-hits-9-4-a-new-40-year-high-11658299818
TITHING TO A STRANGER: today.com/food/news/stranger-tips-cleburne-texas-bartender-chelsea-lantrip-bell-4000-didnt-rcna37494

(c) 2022 Stonecrop Wealth Advisors, LLC, All Rights Reserved

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets. 
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States. 
*Bloomberg Barclays U.S. Aggregate: This is a measure of the U.S. bond markets.