In The Know – August 30, 2024

At Financial Issues, we help you stay informed about the financial issues of the day. We keep you abreast of what’s happening in the economy and the markets and help you understand how these developments impact your personal financial situation. Here are my takeaways for the week ending today, August 30, 2024.

So far this week, the Dow (which doesn’t include Nvidia) is up 1%. The S&P (which does include Nvidia) is down 0.2%, and the Nasdaq (which includes Nvidia in a significant way) is down 1.3%.

The pre-markets this morning are looking positive due to the news we received, but let’s take a look at what happened during the week that really impacted the markets. Regarding Nvidia, we mentioned last week that we didn’t add much to the buy list because we were waiting for Nvidia’s results. It had the potential to move the markets significantly one way or another.

The results are somewhat muted. Nvidia’s earnings did not disappoint, at least not entirely. Overall, it was a positive second quarter for Nvidia, with revenues beating expectations by 4.5%, reaching $30 billion.

Nvidia reported earnings per share, which were 11% above what analysts had forecast. However, the forward guidance was not quite impressive enough to support another leg higher for Nvidia. So far this week, Nvidia is down about 7%, which has been dragging down the S&P and the Nasdaq.

We also got the PCE report, which is the Fed’s preferred gauge of inflation. I discussed this a bit on the conference call yesterday. If you missed it, you can listen in, and I encourage you to do so. We shared some first-time information for the ministry that our partners should know about, so please check it out.

Regarding the PCE, there were no surprises—inflation ticked higher for July, as expected. The Commerce Department reported this morning that the PCE, the Fed’s preferred inflation gauge, was up 0.2% month over month, just as expected. Year over year, the number now sits at 2.5%. This is the inflation number the Fed is always talking about, which they are trying to get down to 2%. It sits at the same rate of increase as last month because the July 2023 reading that dropped off was the same as we got this month, 0.2% month over month.

The core number also came in up 0.2%, just as expected. Year over year, it’s the same as last month, sitting at 2.6%, but 0.1% better than expected. So, nothing alarming here; according to the official inflation numbers, it’s business as usual. The Fed now has the green light to continue focusing on the labor markets and initiate the cuts they have telegraphed.

Personal income was also released this morning, showing an increase of 0.2% month over month, which was just as expected. Personal income in the U.S. rose 0.3% from the previous month to just over $24 trillion in July 2024, up from a 0.2% increase in the previous month.

Personal spending also came out as expected—no real surprises here. Personal spending in the United States increased by 0.5% from the previous month in July 2024, in line with expectations.

Not surprisingly, the largest contributor to the increase in service spending was housing, which is currently at a very unaffordable level, along with utilities. Within the goods sector, the largest contributors to the increase were motor vehicles and parts, as well as food and beverages. Real consumption, or real spending, was up 0.4% from the previous month.

Finally, let’s talk about pending home sales for July. Pending home sales softened, falling by 5.5% month over month, compared to an estimate of a 2% increase. This follows a 4.8% rise in June and an overall decline of 4.6% year over year. I’m not surprised.

Yesterday, we discussed a record 60,000 home purchase agreements that were canceled in July, amounting to 16% of all homes under contract. There was a significant drop-off last fall, in October 2023. We saw mortgage rates reached 8% for 30-year mortgage rates. This is where home sales dropped to the lowest level since 2001, which is when this metric first began to be tracked.

One reason for these cancellations of home contracts last month could be the elections. Could it be that first-time homebuyers are being enticed with a $25,000 offer by Kamala Harris, if she’s elected, to purchase their first home? Kamala recently did an interview for the first time in about 30 days since becoming the presumptive Democratic candidate.

She’s discussing her plan to provide a $25,000 credit for first-time homebuyers. She talks about bringing down the cost of housing, saying, “My proposal includes a tax credit of $25,000 for first-time homebuyers so they can have enough for a down payment on a home, which is part of the American dream and their aspiration, but do it in a way that allows them to actually get on the path to achieving that goal and that dream.”

A little Econ 101 for Kamala: this clip highlights either her misunderstanding of basic economics or her inability to communicate clearly. Here’s how a tax credit works: you buy your home, then you file your taxes, and then at tax time, you get a $25,000 credit. She didn’t specify if it’s refundable, which could mean it might take several years to get back if you don’t pay $25,000 in taxes.

So, you have to buy the home before you get the credit. I’m not sure how she thinks this will help people come up with their down payment, as she indicated. And by the way, if she is elected, this plan has almost zero chance of being passed. Even if it did, the price of a home would likely increase even more by the time they get that $25,000 credit she’s offering, just like what happened with EVs when they got that tax credit. Guess what? EV prices went up by almost the same amount.

So, what’s coming next week? Well, it’s jobs week. We’ll get the ADP, JOLTS, and non-farm payrolls reports, which have the potential to move the market. Now that you’re informed about recent and upcoming financial issues, we hope you’ll learn more about how we can help you integrate these insights into your own financial stewardship.