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Good morning. New house Sales The US was 14 percent lower in May in May. Sales already reduces low expectations and sits at a seven -month low. This unsold sends new housing inventory even more. How bad can the housing market be before the rest of the economy is affected? email us: unhedged@ft.com,
US economic flexibility
There was a war, and did not care in American markets. Here, for example, there is a chart of S&P 500:
There were tricks, but they were restrained. There were only two days that the S&P 500 exceeded 1 percent (and then it was more than only more than 1 percent of the difficulty): the next day of the Israeli war began (13 June) and when caught on the ceasefire (24 June). Zoom for the year so far has been registered as a break in the last two weeks. While most of us are thinking of the Middle East, the markets are thinking of other things. What exactly? What kind of market rule is we in?
There is a meaning in which the current rally started in the first half of April – when the possibility of tariff was at its peak and then began to decrease. But in our view, the current market regime began some time in mid -May. Treasury yield is at its peak on 21 May and has been falling since, which is to say that bond prices are rising. At the same time, equity has done high churning. This is the first continuous period of positive stock-bond correlation since February.
At the same time, the dollar, which had ralled after a sharp fall in winter and spring, started slipping again in May. This starts a re -beginning of normal relationships – yields, dollar below – which stronger before “American extraordinary” fell into suspicion, leading to increased yield.
We are not sure why there was a change in May. US-China Trade trus It happened in the middle of the month. Talk about modification Supplementary exorcism ratioWhich can increase the demand of banks for treasures started gain traction At this time, as well as. The 30 -year -old Treasury produce, which was focusing on the apprehensions about the fiscal incontinence of the big, beautiful budget, also started falling around May 21.
But specific catalysts are probably not very important. Instead, we think that what we are seeing is the result of American economy and American companies that repeatedly display flexibility in front of the shock.
Everyone was waiting for a sharp increase in interest rates in 2022-23 to cause recession. It never came. As the Scott Cronide of Citigroup told us, the engine AI Boom of the Tech Economy and Equity Rally, AI Boom, was surprised by the efficiency of the Deepsek model last January. But the results of the first quarter from Big Tech showed that the AI data center investment boom was still very high. Then Donald Trump’s Persian “Liberation Day” tariff declaration came; Fall in consumer, investor and corporate spirit; And the possibility of capital outflow from America. The housing market, which caused the last major recession, is weakening and weakening. But, through all this, the American economy has continued rolling.
Equity investors have replied to the business working before those shaking – before buying Big Tech. Since 21 May, Info Tech and Communications have been the best performing sectors, only two sector negative price returns with defensive consumers staples and utilities. The S&P is more than 4 percent for the period, and more than half of that profit is below six companies (Nvidia, Microsoft, Meta, Oracom, Broadcom and Amazon).
The narrowness of the market will worry to some people, but it is wise that it is a hate bull market, it is beginning to fade. The American Association of Individual Investors Survey has returned from this Deep climbing Of April. Here is aaii bull-bear spread:
All these are two ways to read. A traditional, pessimistic reading that says the market “climb a wall of anxiety”. Now that the wall has climbed, the risks are more for the negative side. You want to buy worried markets, not Sanguine. But a more optimistic, long -term reading is that we have learned something to encourage something this year, which helps us to justify the high prices paid for the risky assets: you can throw a lot in this economy before it stumbles.
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