Market Note – January 22, 2024

By Hightower Great Lakes on January 22, 2024

Watch the Housing Rebound

We believe housing is a big theme for 2024 and the data last week was supportive of the turnaround. The National Association of Home Builders (NAHB) Housing Market Index (HMI), a leading indicator for single-family homes, rose 9 points year-over-year (y/y).

Another leading indicator, single-family housing permits, rose +32.9% y/y. Meanwhile, multi-family permits fell -25% y/y – an indication that rent prices are set to ease, which would be good news on the inflation front.

Chart 1: Building Permits for Single-Family Accelerated in 2023, Multi-Family Slowed[1]

The supply/demand situation remains favorable for the industry as home building has underproduced for the last 13 years, which has led to a shortfall of five million homes in the country. In addition, there are five million millennials seeking to buy their first homes.

We prefer exposure to single-family homes over multi-family as interest rates come down. In fact, the 30-year fixed mortgage is down 106 bps from its peak 8% to 7%, which has led to an increase in mortgage applications, a good predictor for future demand.

Consumers Shopping

Last week, initial claims for unemployment insurance reached their lowest level since 1969, coming in at 187,000. The four-week moving average is 203,250 – well-below the 350,000-375,000 typical recession levels. Job strength in the economy is critical for the consumer and is supportive of consumer spending.

Last week, retail sales grew double Wall Street’s expectations, +4.8% y/y in December. This also included +9.7% y/y in online retail spending. General merchandise, which represents discretionary spending, increased +3.3% y/y.

Sales increased +10.7% y/y for health and personal care items, +10.7% y/y for electronics and appliances, and +4.3% for clothing items. This data supports what we are hearing from companies like Costco (COST), which saw accelerated same-store sales jump by +9.9% y/y in the month of December.

It’s also worth pointing out the acceleration in sales of discretionary items, which could mean the end of inventory liquidation and an uplift in the goods side of the economy.

Chart 2: Accelerating Retail Sales, Decelerating Price Inflation[2]

Markets Want Easing, Fed Staying Higher for Longer

In the fourth quarter, equity markets rallied 9% from the October lows. It was also accompanied by a broadening in sectors beyond the Mag 7 technology stocks, due to the positive inflation figures and increased thoughts of a soft-landing in the economy.

We continue to watch the overall strength in the economy, which is now expected to grow at the 2% level. We like to see solid growth, but we are watching what it does to the inflation trends.

Bond Markets Tamp Down March Rate Cut Expectations

U.S. Treasuries sold off throughout the week on strong data (December retail sales, U of M consumer survey) and hawkish sentiment from Fed Governor Waller that cooled March cut expectations from 88% to 46% on the week.

The U.S. 2-year yields sold off by 25 bps, 10-year by 20 bps and 30-year yields by 15 bps. High yield spreads narrowed to 391 bps, just 10 bps off the lows made at the end of the year. Muni yields jumped higher by 12-15 bps across the curve.

Chart 3: Bond Yield Volatility (10-Year Treasury Yields Moved 120 bps Peak to Trough in Q4, up 35 bps Since December)[3]

The Week Ahead

Earnings – Tuesday: GE, DHI, RTX, VZ, MMM, UAL, PCAR, NFLX; Wednesday: NFLX, AXP.

Economics – Thursday: GDP (Fourth Quarter), New Home Sales (December), Building Permits (December), Chicago Fed National Activity (December), Kansas City Fed Manufacturing (January); Friday: PCE (December); Personal Income (December).

Return for Selected Indices^[4]

Click here to read last week’s Market Note (1/9).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors.

All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

---

[1] Source: FactSet (chart). As of January 22, 2024.

[2] Source: FactSet (chart). As of January 22, 2024.

[3] Source: FactSet (chart). As of January 22, 2024.

[4] Source: Bloomberg. As of January 7, 2024.