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Investors are returning from a holiday-shortened week, and all attention will likely shift to trade policies. The economic calendar is relatively light this week, but there are some key data releases that could impact market sentiment.
Housing Market Update
The housing sector has been struggling for years, with prices holding steady due to limited supply. However, sales activity has declined significantly due to rising interest rates, making it less affordable for buyers and discouraging sellers from listing their properties.
Wednesday’s New Home Sales report is expected to show a continuation of this trend, with forecasts indicating a sale of around 680,000 new homes. If realized, this would be the lowest level since the COVID-19 pandemic.
Housing market experts attribute the decline in sales activity primarily to the rise in interest rates, which has made mortgage payments less affordable for potential buyers. Furthermore, the lack of incentives for sellers to list their properties and refinance at higher rates has also contributed to the sluggish sales pace.
While prices have managed to hold steady despite the decreased supply, the overall trajectory remains concerning. The housing market’s performance will likely continue to play a significant role in the broader economic landscape.
Economic Indicators
Thursday brings the Durable Goods report, which is expected to grow by 1.5% from the previous quarter. Since consumer spending accounts for more than two-thirds of US GDP, this metric can provide valuable insights into the state of the economy.
Another important indicator on Thursday will be Weekly Unemployment Claims, which have remained below average levels despite ongoing economic uncertainty. If these claims continue to stay low, it could signal a strengthening labor market.
On Friday, investors will receive revisions to both the Consumer Sentiment Index and Inflation Expectations, which are expected to show above-average growth in inflation expectations. This could raise concerns about future interest rate increases, impacting bonds and mortgage rates alike.
Consumer Sentiment has been struggling lately, with sentiment indices at some of their lowest levels post-COVID-19. Despite these lows, consumers still base many decisions on how they feel rather than objective financial data.
Earnings Season
This week marks the beginning of a significant earnings season, as major companies like Netflix (NFLX) kick off a wave of quarterly releases. Investors will scrutinize earnings reports to understand how uncertainty and economic fluctuations have affected each company’s performance.
Netflix has been an exception in recent years, consistently delivering strong beat expectations with both revenue and profit growth significantly surpassing forecasts. Netflix delivered its largest beating in 17 years, growing 25% in Q1 and outperforming estimates for the sixth consecutive quarter. With investors looking for signs that other tech companies can also match this performance, attention will be on those stocks heavily reliant on subscriptions and content.
Earnings figures are critical to guiding investor confidence as markets navigate high uncertainty. While it’s been hard to predict the economy accurately lately, one trend stands out: global stock markets generally perform well despite a softening US economy.
Most of us know this already but reviewing historical data can be insightful indeed. US stocks have returned 9.7% per annum while UK financial assets showed almost identical performance.
