MARKET COMMENTARY

Here are the economic and market highlights for the week: 

• May retail sales rose 0.10%, slightly below estimates of 0.20% growth. A 2.20% decline in gas station receipts dragged down the headline figure as prices at the pump continued to ease. Consumers pumped those savings into discretionary categories such as sporting goods, music, and book stores; clothing; and motor vehicle and parts dealers which rose 2.80%, 0.90%, and 0.80%, respectively.

• The service sector kept going strong in June with the Flash Services PMI index posting its highest reading in 26 months. The flash services activity index hit 55.1, which was higher than May’s 54.8 reading and better than analyst estimates of 54. Readings above 50 indicate expansion while those below signal contraction. The manufacturing index also moved higher in June, hitting 51.7. The manufacturing index now sits at a three-month high and 0.4 points higher than in May. The flash PMIs are forward-looking indicators, and their recent readings suggest broad economic demand remains strong.

• Home prices continued to rise in May despite a jump in inventory. The median price of an existing home hit a new record high of $419,300, up 5.80% yoy. The record came despite inventory increasing 6.70% month-to-month, bringing total inventory 18.50% higher from the year ago period. The increase in the number of homes means the market now has 3.7 months’ worth of unsold inventory. That is the highest inventory level seen in four years, as it continues to inch closer to the six to seven months considered to be a healthy balance between supply and demand. The higher median price was due to home sales being concentrated in the $750,000+ segment, which grew double digits month-to-month. Notably, while interest rates may be taking a toll on sales volume and first time home buyers, it is not appreciably impacting pricing. Over 30% of homes were sold above list price with homes receiving an average of 2.8 offers per sale. All cash buyers were 28% of all sales, while the share of individual investors and second-home purchases were 16%. On the homebuilding side, homebuyers are not seeing much help. Construction of new homes fell 5.50% to a 1.28 million unit annual pace. This is the lowest level in four years and is also a decline from April’s 1.35 million pace. Higher than normal financing costs and elevated mortgage rates forced builders to pull back on new projects. The decline hit both single-family and multi-family starts across most of the nation. Building permits, a sign of future construction, also fell 3.80% to a 1.39 million unit rate. 

Markets Rise During Shortened Trading Week

The blue chip Dow Jones Industrial Average sprinted higher this week, outpacing its tech heavy rival, the S&P 500. Resilient economic data on consumers and businesses helped push the Dow to a 1.45% weekly gain compared to the S&P 500’s 0.61% rise. The latter briefly topped 5,500 during Thursday’s trading session as traders continued to pile into tech darling, Nvidia. The stock temporarily unseated fellow tech giant, and Dow 30 member, Microsoft, as the most valuable public company on Tuesday. Nvidia shares have climbed more than 155% this year as the AI boom continues to cast a positive halo over all equities. Optimism over AI, resilient economic growth, upward earnings expectations and the prospect for Fed interest rate cuts have prompted analysts to boost their year-end, baseline S&P 500 target level to 5,600. This is only about 2.50% above Friday’s close. The S&P’s strong, year-to-date performance has been concentrated in just a few names—Microsoft, Nvidia, Google, Amazon, and Meta. According to data compiled by Goldman Sachs, the market cap associated with these five names within the S&P 500 has risen 45% year to date while they’ve reported earnings per share growth of 84% versus 5% for the typical stock. Despite the year’s gains, there are a lot of expectations baked into the market’s valuation. The market is trading at 21-22x forward earnings, which is rich in normal times, but so far AI has managed to deliver real earnings growth while earnings estimates for S&P 500 constituents more broadly have been rising as well.  Markets are now pricing in a 67% chance of a rate cut in September, its highest odds since early Spring, and with no major catalysts on the immediate horizon, bullish sentiment continues to go unchallenged.  

The Week Ahead

Next week, we will take a look at the following data: 

• PCE Index
• Durable Goods

It’s a Dog Eat Dog World in Hot Dog Dispute

Americans are preparing for upcoming Independence Day celebrations and traditions, including fireworks, parades, and the quirky, hard-to-look-away spectacle of competitive hot dog eating. Each year, thousands of spectators gather on Coney Island in New York to watch top professional eaters compete for the coveted title of hot dog eating champion as part of Nathan’s Famous 4th of July Hot Dog Eating Contest. Nathan’s Famous is a restaurant chain that specializes in hot dogs. About 40,000 people watch the contest in-person every year. It is also broadcast on sports network ESPN to millions of viewers. While the eating contest appears to be a free-for-all, the competition is governed by the following rules:

• Participants must qualify for the July 4th event at one of four contests hosted in May and June in Michigan, Ohio, California, and Washington, D.C. by Nathan’s and Major League Eating. The female and male winners of these events qualify to compete on Independence Day.
• Contestants must be 18 years or older.
• Contestants have 10 minutes to eat as many hot dogs and buns as possible.
• Contestants are allowed to dip the buns in water to help them go down more easily.
• Yellow cards may be issued for messy or sloppy eating as warnings from officials who watch to ensure the whole hot dog and bun are being consumed. Two yellow card warnings result in ejection.
• A “reversal of fortune” results immediate disqualification, so winners must keep everything down.
• At the end of ten minutes, the official count measures hot dogs and buns down to the eighth.
• A tie for first place is settled with a five-dog eat-off. The first one to finish the five hot dogs and buns wins. 

Professional eater Joey Chestnut is the defending champion who has won 16 of Nathan’s Famous 4th of July Hot Dog Eating Contests for the men’s division. However, it was recently announced that he would not be competing in the 2024 event since he signed a deal with a rival brand that sells plant-based hot dogs. Chestnut first participated in the Nathan’s contest in 2005 where he finished third. He finished in second place the following year and won the contest in 2007. He would go on to win seven years in a row until losing in 2015. He won again in 2016 and has remained undefeated for the past eight years. His record is 76 hot dogs in 10 minutes on July 4th, 2021. The winner of the women’s division, Miki Sudo, downed 39.5 dogs to win her 9th straight title last year and also holds the women’s world record of 48.5 dogs in 10 minutes which she achieved in 2020. Richard Shea, co-founder of Major League Eating, the organization that governs the contest with licensing from Nathan’s, shared that Chestnut is welcome to the event when he is no longer representing a rival brand. Apparently, it’s a dog-eat-dog world out there. Critics of Chestnut’s July 4th contest ban argue there is no such thing as a vegan dog and have added quite a bit of fodder to the gorger’s quest for glory. Chestnut’s supporters have shared that veggie hot dogs exist in an entirely different category than beef hot dogs and should not be considered a rival to the real thing.  

Fans of Chestnut are hoping the dispute can be resolved so that Chestnut can defend his title. His ban has apparently been hard for the world of competitive eating to swallow. Chestnut holds more than 50 official competitive eating records for a range of foods, including chicken wings, burgers, tacos, asparagus, pies, wontons, funnel cakes, Twinkies, gyros, waffles, and more. Netflix just announced it will broadcast a live showdown of Chestnut with his long-time rival Takeru Kobayashi in Chestnut vs. Kobayashi: Unfinished Beef that will air later this year. The hot dog eating contest is being marketed as the ultimate wiener-takes-all competition to finally settle a 15-year rivalry between the two competitive eaters. Chestnut barely bested Kobayashi at the Nathan’s contest in 2009 in a five-dog “sudden death” round, and the two haven’t faced off since. Fans can catch up on the Chestnut-Kobayashi rivalry ahead of the Unfinished Beef rematch in a 2019 documentary titled 30 for 30: The Good, The Bad, The Hungry on Netflix.