Daily Commentary

MarketMinder’s View: Please note, MarketMinder is politically agnostic. We favor no party nor any politician and assess political developments for their potential market and economic impact only. A new Harris poll found that nearly three in five Americans believe the US is in a recession while nearly half of respondents believe the S&P 500 index is down year-to-date—and unemployment is at 50-year highs. As this piece points out, these views aren’t aligned with reality: The US economy is expanding, not contracting, the S&P 500 has posted double-digit gains year to date and the unemployment rate is near to 50-year lows, not highs. So what does this all mean? While just one poll—and there is no information here on the specific wording of survey questions—a few things stick out to us. First, the article highlights politics’ role in respondents’ answers—nothing new, in our experience. When a Republican sits in the Oval Office, Democrats tend to have a gloomier outlook on markets and the economy, and vice versa when a Democrat is president—a reminder that political biases can blind. Secondly, this poll suggests Americans are feeling pretty down about the broader economy. That doesn’t mean anything for the economy’s direction—feelings aren’t predictive—but from an investing perspective, Americans’ gloomy views of stocks and the economy suggest stocks’ wall of worry—which bull markets climb—still has plenty of bricks.

MarketMinder’s View: According to the National Association of Realtors, sales of previously owned homes—the majority of the housing market—fell -1.9% m/m (-1.9% y/y) in April. Despite inventory of homes for sale rising 9% m/m (16% y/y), demand still appears to be outpacing supply since there is “… still just a 3.5-month supply at the current sales pace. A six-month supply is considered balanced between buyer and seller.” The month-over-month dip notwithstanding, “Tight supply kept prices under pressure. The median price of an existing home sold in April was $407,600, an increase of 5.7% year over year. That is another record high price for April. With multiple offers, due to strong demand, 27% of homes sold above list price.” The upshot: Higher prices are making it more attractive for homeowners to sell despite high mortgage rates’ inherent disincentives, but it will take time for the pressure valve to ease and let supply better balance demand. As for the broader economic impact, this is perhaps a small tailwind since tight supply and rising prices incentivize new construction—which is the primary way real estate contributes to GDP. But residential real estate makes up only 3% – 5% of US GDP, so it is a slight tailwind at best. Consider: Existing home sales tumbled -17.8% and -18.7% in 2022 and 2023, respectively (per FactSet), after mortgage rates spiked beginning in early 2022. Still, US GDP grew in all but two quarters since then. Don’t overrate residential real estate’s macroeconomic impact.

MarketMinder’s View: The thesis: Gold is hot now thanks to central banks’ buying up the precious metal—allegedly due to the threat of sanctions. We understand the thinking here—in theory, imposing economic sanctions on gold would be more difficult than other assets. Financial markets’ structure enables governments to freeze another sovereign’s liquid assets held in their jurisdiction, while gold is easier to move on the black market. But we have some issues with the notion this is why gold is rallying today. As this piece notes, “China’s central bank, in particular, has been buying gold for 18 straight months since November 2022, boosting its gold reserves by 16%, or 10 million troy ounces. China’s economy is much larger and more important to the world than Russia’s was in 2022, which would make imposing sanctions tougher if it invaded Taiwan.” By that logic, gold should have steadily climbed over the past 18 months—yet prices were quite bumpy (especially in 2023). This also presumes economic sanctions are effective at choking off targeted governments from global markets. Russia shows the shortcomings here, given the massive Russian oil flows to China and India in recent years. To us, gold’s rally is likely more sentiment driven than anything fundamental—not something investors can assign probabilities to, in our view.