Halyard’s Weekly Wrap – 7/22/22

From an economic perspective, this has been a terrible week; especially so for the housing sector.  The NAHB housing index, housing starts, and existing home sales all plunged, as did mortgage applications.  The earnings release from D.R. Horton, the home builder, beat expectations, but the company said that sales are expected to slow, and cancelations rise as buyers are experiencing “payment shock.”  After falling a quarter point last week, the average 30-year mortgage rate ticked back up to 5.625%, giving pause to perspective buyers.

Earnings started to pour in this week, and they’ve not been great. The banking sector, categorically, has seen a decline in earnings year-over year, and they have begun to increase their provision for loan losses.  That’s not a bad thing, given the expectation for slower growth and the potential for a recession.  A reflection of that slower growth was seen in AT&T’s earnings report.  Despite beating expectations on top and bottom lines, they said that they’ve witnessed a material slowing in on-time bill payment.

Given AT&T’s comment, we’ll be curious to learn the impact of the consumer on retail earnings of retailers like Walmart, Target, and Macy’s when they report next month.  All have warned about excess inventory and markdowns but haven’t really offered a clue as to consumer spending.  We suspect that higher gas prices have slowed spending somewhat, but markdowns and sales have kept the consumer spending.  Amazon announced their two-day prime sales event generated record revenue for the company.  But Amazon has been successful in generating excitement for the event, in a similar fashion to after-Thanksgiving Black Friday of a decade ago, which does not necessarily translate into trend spending.

As we close out the week, investor attention is focused on next Wednesday’s FOMC meeting.  On the back of the Bank of Canada’s 100 basis point surprise rate hike last week, pundits began to speculate that the Fed would follow suit.  But as the anecdotal weakness continued to pour in this week, expectation has shifted back to 75 basis points and the possibility of a pause at the September meeting.  We eagerly await the Chairman’s post-meeting comments.

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