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| CONSUMERS KEEP SPENDING: Despite inflation, interest rates, and headline news about the debt ceiling (see below), consumers in the U.S. increased spending in April for the first time in three months. It rose by 0.4% from the month before. Purchases on autos and dining out led the way. Retail spending is up 1.6% from a year earlier, but since inflation is up 4.9% during that same period, real spending is down. Nevertheless, the news boosted markets. |
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| PLEASE MAKE A DEAL!: We are all waiting for our governmental representatives in the legislative and executive branches to reach a deal on the debt ceiling. This is one of those messy “balance of powers” things that is ugly to watch. But it is getting seriously troublesome now. The Secretary of the Treasury and former Fed Chair, Janet Yellen, has estimated that the U.S. government will cease having the ability to pay all its bills on June 1. Many economists already believe (and may of you too) that we are heading to a recession later in this year or early next year. With uncertainty surrounding the debt-ceiling, even a last minute deal will move the needle a bit more toward recession. Consumers and businesses and investors retrench when they see uncertainty. In 2011, Congress raised the debt ceiling right before the deadline. Stocks declined and took months to recover. If a deal is reached after the deadline, but before any missed payments (we will have days or perhaps as long as weeks after June 1 before any payments are missed), then the damage will be slightly worse. If we miss payments, but the government gives priority to debt payments, i.e., it doesn’t pay Social Security recipients but it does make bond payments, then we can stave off default for a bit of time. Again, with all the uncertainty created by such a scenario, the recession most people are expecting would likely come quicker. The silver lining is that inflation would very likely subside much more quickly. If no deal is reached for weeks, and we default on debt payments, it would begin to create more severe reactions in the global markets because of the importance of U.S. Treasuries throughout the global system. So yes, there is a lot riding on these negotiations, and we are watching them very closely. |
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| REGIONAL BANKS HAVE A BETTER WEEK: One of the distressed banks we have all been watching, Western Alliance, announced this past week that it had received a $2 billion increase in deposits. That was unexpected good news. The regional banking sector of the U.S stock market rose 7% in one day. That sector remains down 33% for the year. |
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| STOCKS RISE: When debt ceiling negotiations showed little progress on Friday, the markets paused and retrenched, but just a bit from a strong week in the markets. U.S. economic data continues to show a resilient economy. The labor market remains strong and consumer spending is healthy. Corporate earnings reports from large retailers last week (e.g. Target and Walmart) also boosted investors’ moods. |
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| LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices. |
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| RESIDENTIAL HOME CONSTRUCTION MARKET: The construction of new homes in the US increased in April, rising 2.2%. There are currently 1.4 million homes under construction. The gain in April was driven primarily by growth in the number of single-family homebuilding. Building permits, which shows what future construction will look like, fell 1.5%, the second consecutive month of declines. The current level of housing starts and building permits is back down to where we were pre-Covid. Construction jobs remain solid but could begin to show some slowing if new home construction slows down. |
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| MORE HOMES, BUT STILL LOW INVENTORY: According to the National Association of Realtors, inventory of existing homes for sale increased to 1.04 million in April from 0.97 million. These are still low numbers. |
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| IT’S THAT TIME OF YEAR, CONGRATULATIONS ISAAK!: It seems I have not been spending many weekends at home lately Now it is graduation season, and I am off to Florida to visit my brother and celebrate the high school graduation of his kid, Isaak. He graduated cum laude! I am very proud of this young man. |
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| AIRPORT ENCOUNTER; While in the airport with my wife and son, I looked at a fellow traveler waiting for the plane to board, and it looked just like one of my clients. She was about ten to twenty feet away in the crowded terminal, so I looked at her and said her name. No response. I said it again a little louder. Nothing. At this point my wife and son were asking me what I was doing. When I told them I am pretty sure I recognize someone, they said, “What if it isn’t her?” So I stopped. Then we boarded the plane and she was sitting right in front of me. I said her first name loud enough that if it was her she would have to respond. I was 99% sure it was her. Nothing. So I pulled out my phone and texted her telling her that if she was not on a plane to Tampa, I just met her doppelganger. No response. Finally, about half way through the flight when people were moving around, she looked back at me, “Doug!” She also recognized my wife Deb from pictures that have been in this email. It was nice to be vindicated. |
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Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.
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Douglas R. MacGray, J.D., C.F.P. ®
President
Stonecrop Wealth Advisors, LLC
Direct | Cell | Fax
(610) 628 4545
dmacgray@stonecropadvisors.com |
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“I don’t teach kids to be number 1. Organizations and people that tell you you have to be number 1; that’s not it. You don’t have to be number 1. What I teach is to be as good as you can be. Use what you have and be as god as you can be. That’s all you can do anyway.” Jim Brown, February 17, 1936 – May 18, 2023
“How do you change your behavior? Change what you worship.” Tim Keller, September 23, 1950 – May 19, 2023
“Ship your grain across the sea; after many days you may receive a return. Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.” Ecclesiastes 11:1-2
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SOURCES:
PLEASE MAKE A DEAL!: https://www.wsj.com/articles/debt-ceiling-standoff-could-start-a-recession-but-default-would-be-worse-d536c3f3?mod=hp_lead_pos2
RESIDENTIAL HOME CONSTRUCTION MARKET: https://gritcapital.substack.com/p/psa-cramer-says-stay-invested?publication_id=90117&post_id=122107266&isFreemail=false
REGIONAL BANKS HAVE A BETTER WEEK: https://gritcapital.substack.com/p/psa-cramer-says-stay-invested?publication_id=90117&post_id=122107266&isFreemail=false
MORE HOMES, BUT STILL LOW INVENTORY: https://calculatedrisk.substack.com/p/nar-existing-home-sales-decreased-077
CONSUMERS KEEP SPENDING: https://www.wsj.com/articles/us-economy-retail-sales-april-2023-6cc8601e?mod=Searchresults_pos3&page=1 |
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| (c) 2023 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved |
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*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 U.S. Aggregate: This is a measure of the U.S. bond markets. |
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Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.
SDG
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