by Bryan Perry

June 4, 2024

Last Friday’s release of the Personal Consumption Expenditures (PCE) index report for April was a breath of fresh air for the economy, consumers, businesses, and the markets. After the past two weeks were marred by a couple of weak Treasury auctions, yields ticked higher, stocks were correcting, and it seemed as if nothing could change the negative tone that had taken hold of investor sentiment.

Even last Friday’s session was lackluster until the last half hour of trading saw a huge rally into the closing bell, likely driven by short-covering and month-end re-positioning by fund managers. 

Highlights from the last week’s indicators showed that personal income increased 0.3% month-over-month in April, following an unrevised 0.5% increase in March. Personal spending increased 0.2% month-over-month, following a downwardly revised 0.7% increase (from 0.8%) in March.

The PCE Price Index was up 0.3%, month-over-month, as expected, leaving it up 2.7% year-over-year, unchanged from March. The core PCE Price Index was up 0.2% month-over-month (consensus 0.3%), leaving it up 2.8% year-over-year, unchanged from March. Some key factors that are moving in the right direction include the PCE Price Index for Services – up 3.9% versus 4.0% in March. The personal savings rate as a percentage of disposable personal income held steady at 3.6% and rental income increased 0.1% month-over-month on the heels of a 1.5% increase in March.

PCE Core Inflation Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Another development reported last week was how there are some early signs of stress in the housing market. With mortgage rates stuck above 7%, home affordability is starting to negatively impact consumer spending, as was voiced by several retailers during the first quarter reporting season.

With the Fed possibly set to hold rates steady through the summer, rate pressure is frustrating those seeking to purchase homes. Renters say there is a 60% likelihood they will “never be able to own a home.” That is the highest number since the New York Fed started this survey a decade ago. The record high median home price tag of $433,000 – plus high interest rates for mortgages – are bad enough, but insurance costs and property taxes have also spiked. Zillow reported last month that homeowners are committing an average of 35% of their income to house payments, compared with just 29% for renters.

Rent vs Buy Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It is also reported that foreclosures are on the rise in what have been some of the hottest markets in the U.S. In Houston, for instance, foreclosure filings jumped 37% in the first quarter from a year earlier, according to data from property tracker Attom. Filings are also rising in Orlando, Tampa, and Miami.

The shelter component now accounts for 42% of the Consumer Price Index (CPI). For April, the shelter index was up 0.4% month-over-month and +5.5% year-over-year, after peaking at 8.2% in March 2023.

Hot Spots Bar Graph

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

While the large national home-builders continue to bring new supply to the market, there is a chance that home prices will start to level off, in time. But that has yet to be the case in the form of hard data.

FRED Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Looking at the bright side, the inflation data is showing some slight signs of improvement, the AI rally is still intact, and the wealth effect of rising stocks and real estate prices is still underpinning consumer spending among the upper half of income earners, but I still have concern for the runaway deficit spiral by the government. There seems to be no coherent set of plans to rein in spending at the federal level.

Below is a schedule of future Treasury auctions, of which $140 billion will be auctioned off this week. Fortunately, they involve 30-day and 6-month T-Bills, where there is usually a strong appetite for bids. I’m more concerned about the second and third week of June, when the 3-year, 10-year and 30-year Notes and Bonds need to see buyers show up to hold the yields below 5%. We’ll see if such buyers show up.

Auction Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

May was a good month for the bond market, despite a few shaky auctions. With inflation starting to cool, and rates moving in the right direction, June auctions may go well. Here’s the direction of rates in May: 

U.S. Treasury Yield Check for May 31 (along with changes Friday, in the week, and the month of May)

  • 2-year: -4 bps to 4.89% (-6 bps for the week; -16 bps in May)
  • 3-year: -4 bps to 4.70% (-2 bps for the week; -18 bps in May)
  • 5-year: -4 bps to 4.53% (unchanged for the week; -19 bps in May)
  • 10-year: -4 bps to 4.51% (+5 bps for the week; -18 bps in May)
  • 30-year: -3 bps to 4.65% (+8 bps for the week; -14 bps in May)

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
The Reversal of the Reversal

Sector Spotlight by Jason Bodner
It’s June. Time For Some “Good Vibrations”

View Full Archive
Read Past Issues Here

About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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