What to watch in the week ahead 8/21

Driving financial news in the week ahead: More housing data, PCE inflation, Purchase Manager Index (PMI), University of Michigan consumer sentiment, Ukraine. 

  • Housing data appeared to be confirming fears of a softening, while Fed Minutes were in line with the Fed’s stated goal to tackle inflation.

  • With odds of a recession still relatively low, some key data is being released next week – including PMIs and consumer sentiment – that are likely to give investors some clarity about monetary policy going forward.

  • This week Yieldstreet launched Motorcycle Loan Portfolio III, and reopened investment opportunities in real estate and structured notes. 
This is a close up view of the US Federal Reserve building in Washington, DC.

US residential housing data: Reuters reported that “U.S. homebuilding fell to the lowest level in nearly 1-1/2 years in July, weighed down by higher mortgage rates and prices for construction materials, suggesting the housing market could contract further in the third quarter. The housing market’s declining fortunes brought fears of a broader economic recession back into focus. But with other data on Tuesday showing industrial production rising to an all-time high last month despite the high interest rate environment, the Federal Reserve is expected to stay on its aggressive monetary policy tightening path.” 

Existing home sales fell 6%. According to the WSJ, “U.S. existing home sales fell in July for the sixth straight month, the longest streak of declines in more than eight years, as higher mortgage rates and a shortage of homes for sale are cooling this once red-hot market.” In addition, according to John Burns Real Estate Consulting, even as “…the 30-year fixed mortgage rate briefly dipped to 4.9% in the first week of August, most builders didn’t see a rise in traffic and sales that they can tie to the temporary rate drop.”1

Right now, “home builders are getting hit first, since they have inventory coming up through the construction stage that needs to be sold, and they are expected to reduce new housing starts meaningfully in the coming days and not to add to the existing inventory in the coming years” said Tejas Joshi, Yieldstreet’s single-family rental real estate director. 

However, the bright spots may lie in commercial non-residential real estate, where prices have not followed the frenzy of the residential market. 

Markets reacted positively to retailer earnings Investors continued to see a silver lining as retailer earnings came out better than expected, while consumer confidence – despite being off its highs – remains strong. 

Goldman Sachs argues recession odds are relatively low… “Although we do not believe the US economy was in recession in the first half of 2022, we estimate the risk that this will change over the next 12 months at about one in three…Nevertheless, we believe that any post-covid US recession would likely be mild, with a limited increase in the unemployment rate of around 1pp. This would be unprecedented in postwar US history, though recessions with similarly limited increases have occurred in other G10 economies, such as Germany and Canada.”2

Fed Minutes confirmed hiking path. Investors appeared to have jumped the gun in speculating that the Fed would backtrack somewhat on its monetary policy stance. Further hikes are all but certain, according to the minutes. While it remains to be seen whether the September meeting will yield a 50 or 75 basis point rate increase, the former seems more likely at this point, with the pace of hiking potentially slowing down further in November and December as the Fed’s own economic projections point to softer growth in Q3 and Q4.3 

More housing data, PCE inflation, University of Michigan consumer sentiment, and retail sales: More housing data is expected on Tuesday (July new home sales), while August PMI data is coming out Monday. In addition, Q2 GDP data (the second estimate) will come out on Thursday, and PCE – which the Fed is closely monitoring for its rate decisions – will be released on Friday. On the same day, the University of Michigan Consumer Sentiment Index will also be published. 

Ukraine-Russia stalemate. As positions become entrenched, a Ukraine counteroffensive in the South appears to be likely at some point before the end of the summer. Markets appear to have largely priced-in a longer conflict, with the prevailing narrative leaning towards a negotiated peace at some point in the near future. A flare up may be a potential flashpoint for investors. 

Yieldstreet’s launches

Yieldstreet continues to offer private market investment opportunities while investor sentiment appears to be marginally improving, which may bring increased inflows into both public and private markets. 

This week we re-opened Nashville Multifamily Equity I.B on the platform, and launched a short term income note. Additionally, Motorcycle Loan Portfolio III, which consists of 1,200+ seasoned loans backed by high-end motorcycles made by brands such as Harley Davidson, Suzuki, and Kawasaki, arrived on the platform, targeting monthly income at a 9% net annualized yield.

*Target returns are offered as opinion and are not referenced to past performance. Target returns are not guaranteed and results may differ materially.

1 Source: John Burns Real Estate Consulting
2 Goldman Sachs Research: “Why a Recession Would Likely Be Mild.”
3 According to Goldman Sachs Research, “FOMC participants expected real GDP would grow at a “below-trend pace” in the second half of the year, reflecting “stronger and more broad-based” effects of tighter financial conditions on aggregate demand.

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