This week, CIO Tom Weary, CFA®️, reports a new high for the S&P 500 and discusses the booming housing market, with U.S. home sales seeing their highest annual increase in more than two decades. He then goes over economic data, including household spending and personal income, before sharing estimate-beating earnings from RFA Core Portfolio holding Accenture and RFA Core and Defensive Portfolio holding Nike.

Transcript

Hi, I’m Tom Weary here at Reilly Financial Advisors with your Weekly Market Update. The stock market soared to new heights this week, as we see in this first chart, helped by positive sentiment surrounding President Biden reaching a bipartisan deal on the general outlines of an Infrastructure bill. We heard fantastic results from a couple of our companies this week and we’ll take a look at the latest readings on the economy, but first let’s focus in on the booming housing market.

U.S. home prices in May experienced their biggest annual increase in more than two decades, as a shortage of properties and low borrowing rates fueled demand. The median existing-home sales price in May topped $350,000 for the first time, the National Association of Realtors said Tuesday and as we can see in this first chart. The figure was nearly 24% higher than a year ago, the biggest year-over-year price increase recorded in data going back to 1999, as we can see in this second chart. Sales prices have been climbing sharply since last summer, when lockdowns related to the Covid-19 pandemic eased across the country and many people rushed to find more space and bigger homes. Others working remotely seized on the chance to move to a less expensive city. The price increase is contributing to a slowdown in the pace of home sales. Existing-home sales fell 0.9% in May from April, marking the fourth straight month of declining sales. Sales are also slipping because there aren’t enough homes on the market to meet demand, say economists and real-estate agents, with existing home inventories at an all-time low, as we see in this next chart. Homes that are for sale are moving quickly. The typical home that sold in May spent 17 days on the market, matching the record low reached in April. Buyers with limited cash for down payments are struggling the most to compete. Just over half of existing-home buyers in May who used mortgages put at least 20% down. And the housing shortage appears to be a global problem, as we see in this last chart, with prices skyrocketing in diverse countries around the world. This is unsustainable. Something has to give.

There was a flurry of economic data released on Friday morning. Household spending was flat last month as consumers pulled back on big-ticket goods purchases and spent more on services, in what has been an uneven recovery from the Covid-19 pandemic. Personal income fell 2% in May from April, the Commerce Department said Friday, as the impact faded from government stimulus checks sent out earlier in the year. April spending was upwardly revised to a 0.9% increase from a previously reported 0.5% rise. Household spending has been supported by rising vaccination rates and ample household savings from rounds of government stimulus when the pandemic restricted businesses and activities. Customers have been going out more as states and cities lift the restrictions. Stronger demand is also driving up prices. The core personal-consumption expenditures price index, which excludes often volatile food and energy items, rose 0.5% in May from a month earlier and 3.4% from a year earlier. This is the Fed’s preferred measure of inflation, but they keep reiterating that they expect this current rise to be transitory.

Two of our companies reported results on Thursday. Before the opening bell, Accenture, the global IT consulting firm and a Core Portfolio holding, beat estimates by 17 cents a share, with quarterly profit of $2.40 per share. Revenue rose over 20% from a year ago and topped Street forecasts, while new bookings jumped 39% to over $15 billion. Accenture saw increasing demand for digital transformation services, with more companies moving to adapt to a hybrid work model. Accenture also raised its full-year forecast, and its stock jumped. And after the close, Nike, a holding in both Core and Defensive Portfolios, absolutely obliterated expectations for both the top and bottom lines, with revenue of $12.3 billion rising 96% from a year ago and beating by $1.3 billion leading to earnings of 93 cents per share beating by 42 cents. Investors applauded by sending the stock price sharply higher. Challenged by a global pandemic leading to store closures and supply chain disruptions, rather than crumble Nike adroitly pivoted to online, resulting in sales that almost doubled from a year ago. That is the epitome of a great company.

So, what does it all mean? The stock market and economy power ahead thanks to historic levels of monetary and fiscal stimulus. All of this stimulus money has had some unintended side effects besides saving the overall economy. As we saw, it has also driven a frenzy in the housing market. Let’s hope that mortgage underwriting standards are more stringent now than a decade ago, so we avoid another hangover. From personal experience recently, I believe that they are. Your companies continue to find ways to navigate these challenging times and flourish. Undoubtedly more challenges lie ahead. We’ll stay on top of the latest developments on your behalf. So, please, sit back, relax, and join us again next week for the RFA Weekly Market Update.

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