Fourth Week of June 2023

THE WELL-TH NOTES
Weekly data-driven insights on the markets and economy

1. Retreat Week

Stocks pulled back last week, ending the S&P 500’s and Nasdaq Composite’s five and eight consecutive weeks of gains, respectively. A less favorable report on business activity was one contributing variable; the S&P Global Flash US Composite Output Index slowed in June to a three-month low.[i] The S&P 500 ended the week -1.37% lower but remained 14.19% higher year-to-date.[ii]

2. Not Buying It

At a Senate Banking Committee hearing last week Federal Reserve Chair Jerome Powell told lawmakers that the central bank is likely “within a couple of rate hikes” from its peak target rate,[iii] which is consistent with most Fed officials’ projections at their last meeting.[iv] But investors aren’t buying into that forecast: The market-implied probability that the target range reaches at least two notches higher by year end is only about 21%, whereas the probability it reaches only one notch or less higher is about 79%.[v]

3. Japan Rising

Japanese stocks have gained nearly 30% this year, rising to levels last seen more than 30 years ago[vi] as investors hope to benefit from more favorable monetary policy and economic growth. Japan’s central bank has committed to keeping rates low, and 1Q annualized GDP was 1.6%,[vii] compared to 1.3% in the U.S.[viii] and 1.0% in Europe.[ix] Warren Buffet also gave the asset class a vote of confidence in April when he said that Berkshire Hathaway owned more stocks in Japan than in any other country outside of the U.S.[x]

4. Home Truth

The median existing-home price ($396,100) dropped -3.1% in May from the prior year, the largest decline since December 2011. However, this drop was driven by lower prices in the South and West; prices in the Midwest and Northeast grew. Existing home sales rose 0.2% month-over-month but fell -20.4% year-over-year, as the inventory of existing homes available for sale remains roughly half the level in 2019.[xi]

5. Riding High

Car insurance prices have risen 17% on average across the U.S. over the past year[xii] ― more than four times the broader 4% rate of inflation across all consumer price index categories.[xiii] One of the main drivers of higher rates is higher repair costs: The cost of repairs has risen 13.5% over the past year.[xiv] Higher auto prices in general and increased accidents are also driving this trend.[xv]

6. Worker Safety

The mean perceived probability of losing one’s job in the next 12 months decreased to 10.9% in May, the lowest reading since April 2022 and only 0.1% above the series low. The mean perceived probability of finding a job (if one’s current job was lost) increased to 56.4% in May from 55.2% in April.[xvi]

7. Getting Up in Years

The average retiree incurs $21,200 per year in total medical expenses. Of this, 55.3% is covered by Medicare, 13.8% by Medicaid, 11.5% by other insurers and 19.4% by the patients. However, annual spending in the top 5% of the distribution (mean annual spending of $131,700) is more than 40 times as large as that in the bottom 50%, much of which is attributable to long-term care, especially nursing home stays not covered by Medicare.[xvii]

8. Retail Therapy

As part of a broader trend toward big retail companies expanding into medical offerings, Walmart has opened 32 health centers in five states since 2019 and plans to have opened more than double that number and expand into two additional states by the end of next year. And it is well positioned to attract new patients: Nearly one-third of consumers indicate they’d be willing to receive medical care at a grocery store or big-box retailer, and 90% of Americans live within 10 miles of a Walmart.[xviii]

9. In a Pickle

Over the past three years, pickleball participation has grown 158.6%, becoming the U.S.’s fastest-growing sport, with more than 36.5 million players in the country. Supply of public pickleball courts has been rising to meet this demand but remains woefully behind: Only 15 cities have more than 10 pickleball courts per 100,000 people (Seattle has the most availability).[xix]

10. The Tall Timber

Amid a global race to build the tallest wooden skyscraper (Wisconsin’s Ascent currently holds the record at 284 feet), a Swedish firm plans to build the world’s largest wooden city in Sickla, Sweden. It will cover 250,000 square meters, contain 2,000 homes and 7,000 offices (along with restaurants and shops), cost about $1.4 billion, and by using wood, reduce the project’s carbon footprint by about 40%.[xx]

[i] S&P Global Flash US Composite PMI™, June 23, 2023, https://www.pmi.spglobal.com/. Accessed June 26, 2023.

[ii] FactSet total returns as of June 23, 2023.

[iii] Otani, Akane, “Tech Stock Rally Helps S&P 500 Snap Three-Session Losing Streak,” The Wall Street Journal, June 22, 2023.

[iv] Federal Open Market Committee, Projection Materials, June 13-14, https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm. Accessed June 26, 2023.

[v] CME Group, CME FedWatch Tool as of June 26, 2023, https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed June 26, 2023.

[vi] FactSet total return as of June 23, 2023.

[vii] Nikkei Asia, Japan’s Q1 GDP Expands by Annualized 1.6%, May 17, 2023, https://asia.nikkei.com/Economy/Japan-s-Q1-GDP-expands-by-annualized-1.6. Accessed June 26, 2023.

[viii] Bureau of Economic Analysis, “Gross Domestic Product (Second Estimate), Corporate Profits (Preliminary Estimate), First Quarter 2023,” May 25, 2023, https://www.bea.gov/news/2023/gross-domestic-product-second-estimate-corporate-profits-preliminary-estimate-first. Accessed June 26, 2023.

[ix] Eurostat, “GDP Down by 0.1% and Employment Up by 0.6% in the Euro Area,” June 8, 2023.

[x] Otani, Akane, “Warren Buffett Is Betting Big on Japan,” The Wall Street Journal, April 12, 2023.

[xi] National Association of Realtors, “Existing-Home Sales Edged Higher by 0.2% in May,” June 22, 2023, https://www.nar.realtor/newsroom/existing-home-sales-edged-higher-by-0-2-in-may. Accessed June 26, 2023.

[xii] U.S. Bureau of Labor Statistics, “Motor vehicle insurance in U.S. city average, all urban consumers, not seasonally adjusted,” as of May 2023, https://data.bls.gov/timeseries/CUUR0000SETE?output_view=data. Accessed June 26, 2023.

[xiii] U.S. Bureau of Labor Statistics, Consumer Price Index Summary, as of May 2023, https://www.bls.gov/news.release/cpi.nr0.htm. Accessed June 26, 2023.

[xiv] U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: Motor Vehicle Maintenance and Repair in U.S. City Average [CUSR0000SETD], retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/CUSR0000SETD. Accessed June 26, 2023.

[xv] Progressive, “Why Are Insurance Rates Going Up?” https://www.progressive.com/resources/insights/insurance-rates/. Accessed June 26, 2023.

[xvi] Federal Reserve Bank of New York, “Short-Term Inflation Expectations Decline Further; Households Become Slightly More Pessimistic About Credit Conditions,” June 12, 2023, https://www.newyorkfed.org/newsevents/news/research/2023/20230612. Accessed June 26, 2023.

[xvii] Henry, Erin, John Bailey Jones, and Pauline Sow, “How Well Insured Are Older Americans?” June 2023, Federal Reserve Bank of Richmond Economic Brief, No. 23-19.

[xviii] The Economist, “Doctor Walmart Will See You Now,” June 24, 2023.

[xix] Shih, Nicole, “Pickleball Craze Sweeps America: Demand Soars as Public Courts Struggle To Keep Up,” CoStar News, June 14, 2023, https://www.costar.com/article/527760433/pickleball-craze-sweeps-america-demand-soars-as-public-courts-struggle-to-keep-up. Accessed June 26, 2023.

[xx] The Economist, “Growing Timber Town,” June 24, 2023.