Market Update

Stocks

Earnings growth for the year is predicted to be 9.8% (up from 7.1% at start of year). Since 1980, the market has been down through April for the last 15 years. The average May through September return in those years is -1.5% vs. +8% in the other years.

Highlights

Net profit margins are expected to be 12.1%, above the five-year average of 11.2%
Companies normally beat expectations and earnings could be +9%
If Fed says it will slow the economy, believe it

Housing

Shifts in disposable income, the cost of credit (and access to it), supply disruptions, and rising labor and raw construction material costs are among reasons for sustained real house-price gains. Rapid real house-prices appreciation does not in itself signal a bubble, but if there is widespread belief that these price increases will continue and purchases arise from a “fear of missing out,” this can cause divergence from fundamentals

Highlights

The 30-year mortgage rate hit 5% for the first time in more than a decade. A year ago,
buying the median American home meant a monthly mortgage bill of $1223 (after a 20% down payment). Now, it requires a monthly payment of nearly $1,700 (a 38% increase).
Rapid real house-prices appreciation does not in itself signal a bubble. Shifts in disposable income, the cost of credit (and access to it), supply disruptions, rising labor and raw construction material costs are among reasons for sustained real house-price gains.

Economy and Labor Market

The US inflation is accelerating at it's fastest rate in four decades while unemployment has fallen below 4%. Since 1955, there has never been a quarter where average wage inflation surpassed 5% and the average unemployment rate was below 5% that was not followed by a recession over the next two years.

Highlights

The extraordinarily tight labor market conditions have coincided with rapid increases in
wage inflation, increasing 1.9% over the last three months.
Historically, when wage growth passes 4.5%, inflation tends to accelerate and begins to
erode workers’ real wages.
Real wages tend to increase with nominal wages up until nominal wage growth
reaches 4.3% and fall thereafter.