The Economy
The Federal Open Market Committee (FOMC) met on June 12, 2024 and voted to hold rates steady based on better-than-expected economic news.
The overall Consumer Price Index (CPI) remained unchanged for the month, contrary to the forecasted 0.1% increase. The 12-month CPI inflation rate unexpectedly decreased from 3.4% to 3.3%. The annual core CPI inflation rated also dropped unexpectedly from 3.6% to 3.4% in April, below the predicted 3.5%. The CPI differs significantly from the Fed’s primary inflation measure, the core Personal Consumption Expenditures (PCE) Price Index, which stood at 123.076 on May 31, 2024. PCE measures the prices that people living in the U.S. pay for goods and services.
The May jobs report revealed a stronger-than-expected increase in employment. Employers added 272,000 payroll positions surpassing the forecast of 182,000. Private-sector employers contributed 229,000 new jobs, exceeding the expected 168,000, while government employment increased by 43,000. However, revisions to March and April hiring figures resulted in a combined decrease of 15,000 jobs. Additionally, average hourly earnings grew by 0.4% in May, above the 0.3% estimate, and year-over-year wage growth reached 4.1% beating the 3.9% forecast.
The Stock Market
Three companies, Crowdstrike Holdings, Inc. (CRWD), KKR & Co. Inc. (KKR), and GoDaddy Inc. (GDDY), will be included in the S&P 500 beginning June 24, 2024 and three other companies will be replaced. They are Comerica Incorporated (CMA), Robert Half International Inc. (RHI), and Illumina, Inc. (ILMN). Based on the announcement, Crowdstrike’s stock value rose by 5% while KKR surged 7.7% and GoDaddy increased 3.7%.
Apple’s (AAPL) decision to incorporate OpenAI’s ChatGPT into Siri, enhancing the voice assistant’s capabilities, has Elon Musk very concerned. He has warned Apple that he will ban Apple’s gadgets from his firms, including Tesla (TSLA) because he sees this collaboration as potentially threatening user privacy and data security.
Stocks on the Move
Broadcom Inc. (AVGO) completed a 10-for-1 stock split on Monday. The company delivered a strong fiscal quarter by beating earnings estimates. Broadcom’s leadership in AI, highlighted by reported AI-related sales of $3.1 billion reinforced its role as a significant player in AI serving major clients like Google with tailored applications. The revised sales forecast for fiscal 2024 is $51 billion. (Industry: Semiconductors; Sector: Technology)
Overshadowing recent quarterly performance setbacks, Oracle’s stock gained as much as 11% after it announced lucrative cloud deals with tech giants Google and OpenAI. A leading company in the software market, Oracle reported adjusted earnings of $1.63 per share on revenue totaling $14.3 billion.
Celsius Holdings, Inc. (CELH) experienced a 17% decline last week at $61.69 which marked a 30% drop from its recent high of $96.92 last month. The PE Ratio is 69.77 and the Forward PE is 55.02. The beverage company stock (CELSIUS & VIBE drinks) is still expensive but could be a good price to pay given its 4,480.58% historical return.
Apple (APPL) has become the world’s most valuable company surpassing Microsoft Corporation (MSFT) on news that Apple’s iPhone business will get a significant upgrade. Apple now has a total market capitalization of $3.33 trillion vs. Microsoft’s $3.26 trillion.
Morgan Stanley downgraded Advanced Micro Devices, Inc. (AMD) from Overweight to Equalweight, setting as price target of $176. This downgrade caused the stock to fall over 4% in intraday trading.
General Motors Company (GM) announced a $6 billion share repurchase plan following a $10 billion stock buyback initiative outlined last November. Shares gained nearly 2% after the news while competitors Ford Motor Company (F) and Stellantis N.V. (STLA) lost ground. Tesla (TSLA), the automaker with the highest market capitalization continued its downward trend.
The Real Estate Market
In a mixed performance for the multifamily sector, the latest Yardi Matrix Multifamily National Report highlighted significant regional disparities in rent growth and occupancy rates across the United States. The Northwest and Midwest are currently leading the charge in rent growth with New York City topping the list with year-over-year (YOY) rent growth of 4.8%. The Sunbelt metros of Atlanta, Phoenix, and Austin, Texas are at the bottom of the Top 30 markets with rent growth at or below -1.5%. The trend is driven by an oversupply of rental units.
With homeowners being priced out of the market due to high interest rates, there has been a shift towards larger apartment units, reaching and average apartment size of 916 square feet. Tucson, AZ, Corpus Christi, TX and Gainesville, FL have seen the most significant in the size of new apartment units.
Coworking spaces have emerged as a transformative force it the office space sector. The first quarter of 2024 has been a landmark period for the coworking sector which grew by 6% quarter-over-quarter (Q-o-Q), adding 346 new spaces bring the total to 6,597. Salt Lake City saw the highest growth with a 15% increase in coworking spaces followed by Minneapolis-St. Paul and San Diego with growth rates of 13% and 12%, respectively.
The industrial real estate sector is witnessing a resurgence in investment activity now that interest rates have finally stabilized. Consumer spending on goods has seen an uptick boosting confidence in the sector’s profitability. The U.S. life sciences sector especially is expected to perform well over the long-term. One of the most compelling aspects of this sector has been its resistance to economic cycles. While the overall economy has lost 5% of payroll jobs, life sciences companies have added 1% to their payrolls.
Blackstone Real Estate’s Global Co-Head, Nadeem Meghji, believes the market is bottoming out and the tide is turning in private markets. He thinks now is the time to play offense now that the cost of debt has come down, the availability of debt has improved, and new construction costs have come down dramatically. “Our pipeline today is as big as we’ve seen in 18 months,” according to Meghji. Blackstone, the world’s largest commercial property owner, sold $20 billion of assets and is in a fierce bidding war with FIBRA MTY and Prologis to purchase Terrafina, a significant player in the Mexican industrial real estate market, for $1.6 billion.
With increased growth in the restaurant sector, after closing 36 underperforming corporate owned restaurants, TGI Friday is expanding into hotels. This expansion into non-traditional locations is part of a broader strategy to diversify and enhance its footprint in high-traffic areas such as airports and casinos.
Real Estate Investment Trusts (REITs)
Simon Property Group, Inc. (SPG) has been actively shifting its strategy to developing luxury apartments adjacent to its retail center in San Diego. With its strong commitment to returning value to shareholders, it has increased its dividend twice in 2024. The latest dividend rise of 2.6% brings the quarterly payout to $2.00 per share, resulting in a yield of approximately 5.3%. Both JPMorgan and BMO Capital Markets have adjusted their price targets upward. On the other hand, while some data center REITs benefit from the AI boom, other sectors like industrial, retail and health care REITs have experienced significant headwinds due to higher interest rates and broader economic challenges.
Upcoming Events
Next week is the Earnings Date for the following S&P 500 companies:
FedEx Corporation (FDX)
Darden Restaurants, Inc. (DRI)
FactSet Research Systems Inc. (FDS)
Jabil Inc. (JBL)
Carnival Corporation & plc (CCL)
Walgreens Boots Alliance, Inc. (WBA)
Huntington Bancshares Incorporated (HBAN)
Economic Reports for the remainder of June include:
MON | 6/18/2024 | Retail Sales Ex-Autos MM | US | 8:30 AM | May |
MON | 6/18/2024 | Retail Control | US | 8:30 AM | May |
MON | 6/18/2024 | Retail Sales MM | US | 8:30 AM | May |
MON | 6/18/2024 | Retail Ex Gas/Autos | US | 8:30 AM | May |
MON | 6/18/2024 | Manuf Output MM | US | 9:15 AM | May |
WED | 6/19/2024 | NAHB Housing Market Indx | US | 10:00 AM | May |
THU | 6/20/2024 | Housing Starts MM: Change | US | 8:30 AM | May |
THU | 6/20/2024 | Housing Starts Number | US | 8:30 AM | May |
THU | 6/20/2024 | Building Permits: Number | US | 8:30 AM | May |
THU | 6/20/2024 | Build Permits Change MM | US | 8:30 AM | May |
TUE | 6/25/2024 | CaseShiller 20 MM SA | US | 9:00 AM | Apr |
TUE | 6/25/2024 | Monthly Home Price MM | US | 9:00 AM | Apr |
TUE | 6/25/2024 | CaseShiller 20 MM NSA | US | 9:00 AM | Apr |
TUE | 6/25/2024 | Monthly Home Price YY | US | 9:00 AM | Apr |
TUE | 6/25/2024 | Monthly Home Price Index | US | 9:00 AM | Apr |
TUE | 6/25/2024 | CaseShiller 20 YY NSA | US | 9:00 AM | Apr |
TUE | 6/25/2024 | Consumer Confidence | US | 10:00 AM | Jun |
WED | 6/26/2024 | Build Permits R Chg MM | US | 8:00 AM | May |
WED | 6/26/2024 | Build Permits R Numb | US | 8:00 AM | May |
WED | 6/26/2024 | New Home Sales-Units | US | 10:00 AM | May |
WED | 6/26/2024 | New Home Sales Chg MM | US | 10:00 AM | May |
THU | 6/27/2024 | PCE Prices Final | US | 8:30 AM | Q1 |
THU | 6/27/2024 | Durables Ex-Defense MM | US | 8:30 AM | May |
THU | 6/27/2024 | GDP Cons Spending Final | US | 8:30 AM | Q1 |
THU | 6/27/2024 | Core PCE Prices Final | US | 8:30 AM | Q1 |
THU | 6/27/2024 | GDP Final | US | 8:30 AM | Q1 |
THU | 6/27/2024 | Durables Ex-Transport | US | 8:30 AM | May |
THU | 6/27/2024 | GDP Sales Final | US | 8:30 AM | Q1 |
THU | 6/27/2024 | GDP Deflator Final | US | 8:30 AM | Q1 |
THU | 6/27/2024 | Durable Goods RMM | US | 8:30 AM | May |
THU | 6/27/2024 | Pending Homes Index | US | 10:00 AM | May |
THU | 6/27/2024 | Pending Sales Change Mm | US | 10:00 AM | May |
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