Wednesday, June 16, 2021
Market futures begin a day of much potential consequence about as moderately mixed as you might have them: the Dow follows two straight down closes down another 28 points, the S&P 500 is exactly flat at this hour, and the Nasdaq is up 16 points.
The tech-heavy index is only a day and a half off from its all-time high close at 14,174. The S&P sees a similar crest as of Monday’s close, now down slightly from 4255.
At 2pm ET today, a new announcement from the Fed regarding monetary policy is widely expected. While no one is on record as expecting a raise in rates off the bottom floor, there is plenty of speculation regarding whether language will shift from bond purchases indefinitely to something resembling a taper. If talk about winding down the buybacks does emerge, will it come with a timeline?
As it happens, the Fed doing and saying nothing it hadn’t said back in early May at the end of its last meeting may have louder repercussions than if a move toward bond tapering is announced. The reason is, after months of the economy clawing out of the abyss of the pandemic, to keep bond purchases where they are might suggest further economic softness down the road, which is not currently evident in nearly all the economic data we’ve seen over the past six weeks.
Acknowledging that the U.S. economy is in a different place than it was — especially with the market being awash in liquidity (with both good and bad connotations) — is a reasonable expectation this afternoon. The real question is whether the Fed will say anything is to be done about it presently. After all, it is the Fed that has kept extremely accommodative conditions in the face of evidence of inflation so far. Will Fed Chair Powell say, “Let it ride” at 2:30 today?
Prior to today’s open, Housing Starts for May came out below expectations: 1.572 million seasonally adjusted, annualized units were reported last month, up 3.6% from a downwardly revised 1.517 million units for April. Input cost headwinds, even while facing heavy demand, are keeping the housing construction market relatively muted. We’re off the March high of 1.725 million units, but in the median over the last six months or more.
Building Permits — a proxy for future starts (though this is somewhat in debate currently) — missed expectations, coming in at 1.68 million units from the 1.73 million anticipated. This is the lowest monthly total since October of last year, likely on the same expense headwinds affecting the starts. In fact, year over year, 50% of permits have yet to break ground.
Single-family housing — of far greater value than multi-family units — was up 4.2% on starts for May, which is a good sign. Yet the single-family space is down 1.6% on the permits side. This undisputed engine of economic growth is meeting inflation head-on, and seeing challenging figures as a result. As housing demand becomes more measured over a longer time-period, perhaps we’ll see lumber, PVC and copper prices abate. Then again, maybe we won’t.
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