Happy July 4th | Housing and Stock Markets & Pickleball

U.S. Housing Market: As described by the infographic below, in Q4 2022, real home prices saw their slowest annual growth in a decade. The graphic compares nominal and real residential property price growth over 50 years based on the latest Bank of International Settlements data. The U.S. residential market is valued at about $45 trillion and has historically been highly sensitive to interest rates. While rapid interest rate increases haven’t yet significantly impacted housing prices, some cracks are beginning to show. However, if prices remain stubborn, it may contribute to inflationary pressures.

First Half vs. Second Half: To say stocks have had an impressive first half of a year is an understatement. The S&P shrugged off rising recession alarms, elevated inflation, global monetary policy tightening, and the collapse of three major U.S. regional banks. As shown in the chart below, most major U.S. indices are wrapping up the first half of the year with some impressive gains:

History suggests the momentum should continue. Since 1950, the S&P 500 has followed up a positive first half with an average second-half gain of 6.0%. Furthermore, when first-half gains were 10% or higher, the index posted average gains of 7.7% in the second half, with 82% of occurrences producing positive results. We should, of course, expect some bumps along the way. We are facing headwinds from global monetary policy tightening, including the prospect of further rate hikes from the Fed, stubbornly high inflation, interest rate volatility, and elevated recession risk. As we often say, let’s keep focused on the long game.

Business Briefing

• Reaching for 2 Percent: Federal Reserve Chair Jerome Powell said Thursday that it would probably take at least two more interest-rate hikes to bring inflation down to the central’s bank’s 2% target. He said raising rates at two straight Fed policy meetings wasn’t “off the table” as inflation remained high despite aggressive rate hikes in the last year. Powell said he didn’t expect core inflation, which excludes volatile food and energy prices, to drop 2% until 2025. (Bloomberg)
• Layoffs: Last week, several companies announced planned layoffs …
  • Ford Motors: On Tuesday, Ford announced plans to lay off 1,000 or more salaried and contract workers in North America. Layoffs are expected to focus on engineers. They have reportedly been cutting costs to offset heavy investments in electric cars. (The Wall Street Journal)
  • KPMG: One of the Big Four accounting firms, KPMG, announced Monday its plans to lay off 5% of its roughly 39,000 U.S. employees. The company said the decision came after it was hit with “economic headwinds, coupled with historically low attrition.” (Reuters)
• Consumer Spending: Consumers increased their spending for the fifth straight month in May, rising 0.1% from the prior month. Americans spent more on services such as healthcare and air travel while spending on goods such as autos declined. Spending was flat in May when adjusted for inflation. (The Wall Street Journal)

Be Safe!: Earlier this month, shares of major health insurance companies fell after UnitedHealth Group Inc. warned that healthcare utilization rates were up—the culprit: the higher-than-expected pace of hip replacements, knee surgeries, and other elective procedures. The theory of what is driving these numbers higher is the booming sport of pickleball. It is estimated that $250-500 million in costs is attributable to pickle injuries in 2023. Of the 22.3 million currently playing pickleball, it is estimated that seniors comprise about one-third of players. Through data collected regarding emergency room visits related to pickleball injuries, the majority of these visits are from players aged 60 or older. In a study conducted in 2021, injuries across that age group were already exploding:

Bottom line: be safe out there on the competitive pickleball court!