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Hope all is well with you. The major U.S. stock indexes were little changed through most of the week but ended with a decline on Friday, snapping a string of four consecutive weekly gains for the S&P 500 and NASDAQ.  It was a light week of market news which I have broken down using REO Speeedwagon songs and lyrics as they are headlining a concert in Long Island this evening.

Take It on the Run

In the words of the song, they’re talkin’ about you (home sales) and it’s bringin’ me down. Sales of existing homes fell for the sixth consecutive month in July as a recent rise in mortgage rates continued to weigh on the U.S. housing market. Home sales fell 5.9% versus the previous month and are down 20.2% from a year ago.

Can’t Fight This Feeling

Consumer spending continues to be the candle in the window on a cold, dark winter’s night. Personal consumption accounts for 70% of GDP and after years of repressed Covid spending, consumers still can’t fight the feeling to spend. Retail sales, excluding auto and gasoline sales, rose by a healthy 0.7% month-over-month. Online sales were up big, while restaurant sales were also higher. This shows a healthy balance between spending on goods and spending on leisure. Inflation dropped in July which makes the 0.7% jump in spending look even stronger as it reflects an increase in nominal sales volumes. The number tells us that for most people the money saved from the drop in gas prices didn’t go into savings but was redirected to discretionary spending. If consumption growth can remain positive, it reduces the chance of a serious recession.

Time for Me to Fly

Bonds, you make me cry and I believe it’s time for me to fly. Expectations for further aggressive moves to raise U.S. interest rates fueled a decline in government bond prices and sent yields to the highest level in nearly a month. The yield of the 10-year U.S. Treasury bonds rose to about 2.98% on Friday, up from 2.85% at the close of the previous week. My anti-bond stance has not changed and there are far better income producing assets than bonds. Expect further declines in bond portfolios as the interest rate environment is going to continue to put downward pressure on bond prices.

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