Friday was options expiration day, with $2.3 trillion of options expiring. For the day, the Dow Jones Industrial Average was down 292.30 points or 0.86 percent, the S&P 500 was down 1.29 percent, and the Nasdaq was off 2.01 percent.
For the week, the DJIA finished down 0.2 percent, the S&P 500 was down 1.2 percent, and the Nasdaq declined 2.6 percent. The major market indexes remain in the red year-to-date, with the DJIA down 7.2 percent, the S&P 500 down 11.3 percent, and the Nasdaq is in the red by 18.8 percent.
Last week ended the 4-week winning streak for the S&P 500 Index. There is some talk that the recent string of positive weeks for the market has been nothing more than a bear market rally, which is now ending.
The Federal Reserve July meeting minutes came out last week. The main takeaway from the meeting shows that the Federal Reserve is not likely to pull back on the interest rate hikes until inflation comes down substantially.
As we have heard for several months now, the Federal Reserve has expressed they will not stop fighting inflation until it comes down or near their desired level of 2 percent. The Fed minutes did not offer guidance for future rate hikes but said they will be watching the data before making the decision at their next meeting on September 20 and 21.
Currently, the market is pricing in a 50 basis point rate hike at the next meeting. The minutes indicated that the current federal funds rate of 2.25 percent – 2.50 percent is near the neutral level, which is neither restrictive nor supportive of economic activity. Some officials believe a more restrictive stance might be necessary.
The Fed acknowledged they are aware of the risk of moving too aggressively. But on Thursday, St. Louis Fed President James Bullard said that he hasn’t seen evidence in the data that inflation has peaked yet. He also said that he is likely to vote in favor of a 75 basis point rate hike at the September meeting.
On Wednesday, the Census Bureau reported July sales and retail activity came in flat. The headline number is a bit misleading since the main drag on the report was lower gas station sales as fuel prices continue to fall. Earlier this year, the average gallon of gasoline topped $5. As of August 20, the nationwide average price is $3.908 for a gallon of regular gas.
Excluding gasoline and auto sales, retail sales rose by a healthy 0.7 percent over last month. Online sales are up sharply, with increases also reported in restaurant sales, goods, and leisure spending. The report continues to show the strength of the consumer.
The housing market continues to show signs of distress as the sales of previously owned homes fell 5.9 percent in July compared with June. Homes sales count dropped to a seasonally adjusted annualized rate of 4.81 million units.
Home sales are down 20 percent from the same time a year ago. The housing market is still facing a supply problem, with 1.31 million homes for sale in July, which is unchanged from July 2021. That represents a 3.3-month supply.
Demand is not as strong as it was, and affordability is still a major problem for potential home buyers as prices continue to remain high. The median price of a home in July was $403,800, which is an increase of 10.8 percent over last year.
Even though the median home sales price continues to increase, it is at a slower pace of increase for the fifth straight month. Current homes listed are almost twice as likely to show price cuts compared to this time last year.
First-time home buyers represented only 29 percent of buyers in July, compared to the historical average of 40 percent. Rents are high and still rising, making it even harder for first-time buyers to save for a down payment.
The housing market is still moving fast. In July, the typical home went under contract in only 14 days. A year ago, it was 17 days.
As of Saturday, August 20, the average rate for a 30-year fixed mortgage is 5.66 percent. That is 12 basis points higher than a week ago.
