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Weekly Update 07/19/2024: Earnings Season Ramps Up

Insights
  • Retail sales strong
  • Homebuilder sentiment weak
  • Elevance Health retreats on expense concerns
  • JNJ reports solid results
  • Kinder Morgan boosted by data center promise
  • Travelers catastrophe losses outweighed by solid underwriting

Consumers buying

According to the Commerce Department, U.S. retail sales in June, excluding autos, rose by the most in three months. Retail purchases less motor vehicles rose 0.4% last month after an upwardly-revised 0.1% rise in May. A lasting cyberattack on a software provider crippled auto dealerships last month making most of that data non-comparable to prior periods.

The solid numbers indicate that consumers may still be battling high interest rates in certain sectors, but they are still finding the wherewithal to spend. “Consumption and economic activity have downshifted significantly so far in 2024. But conditions are far from weakening to a point that would be considered recessionary,” commented Rubeela Farooqi, chief U.S. economist at High Frequency Economics in a note. Only three of the 13 categories tracked saw declines last month including gasoline sales and sporting goods stores. Conversely, sales at health & personal care stores rose by the most since October. Building material and garden equipment stores saw sales rise by the most since February.

Housing market trends

For the third consecutive month, confidence among U.S. homebuilders waned. An index of housing conditions tracked by the National Association of Homebuilders and Wells Fargo fell one point in July to 42, the lowest level this year and one point below the median estimate in a survey of economists by Bloomberg. Gauges of prospective-buyer traffic also fell to fresh lows. Approximately 31% of builders cut prices in July compared to 29% in the month prior. The average price reduction was 6%, while the share of builders using sales incentives was 61%.

New homes starts rose 3% to a 1.35 million annualized rate in June according to the Commerce Department. Multifamily (e.g., apartment buildings) construction surged 19.6%. However, single-family homes fell for a fourth consecutive month and fell 2.3% to the slowest pace in more than a year. Issuance of housing permits for future building rose 3.4%, which helped offset May’s upwardly revised 2.8% decline. The bottom line for housing is that with the spring selling season now over, some trends are becoming clearer. High rates continue to be a headwind for buyers. Rising inventory and declining demand has led to less motivation for building. Certain pockets of strength remain especially in the market for higher-end residences. A Fed rate cut could change these dynamics in the months ahead.

Company Events

SGK writes additional weekly commentary for clients of the firm detailing recent events and earnings of core equity holdings.

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