Below are the economic and market highlights for the week:
- Consumer spending jumped in September. Retail sales rose 0.40%, topping estimates for a 0.30% gain. Excluding autos, sales rose 0.50%, significantly better than the forecast for a 0.10% increase. Excluding autos and gasoline, retail sales were up a solid 0.70%. A 1.60% drop in gas station receipts on lower fuel prices allowed consumers to plow their savings at the pump into discretionary categories. Miscellaneous store retailers, clothing stores, and bars and restaurants led the gains as sales rose 4.00%, 1.50%, and 1.00%, respectively. With inflation expected to continue to retreat, the consumer looks to be on solid footing as we enter the historically busy holiday shopping season.
- Housing starts dropped 0.50% to a 1.35 million annualized rate in September. The decline was driven by a 9.40% slump in the multifamily segment to 317,000, a four-month low. Single-family construction, however, climbed 2.70% to an annualized rate of 1.03 million, its strongest in five months. Building permits, which serve as a proxy for future construction fell 2.90% to a 1.43 million annualized rate. The decline in multifamily more than offset the 0.30% rise for permits for single-family homes. With affordability still a pressing issue, it looks like it will take greater Fed easing and lower mortgage rates to spur a significant turnaround in the housing market.
More Record Highs on Strong Economic Data
Bulls continued to push the major indices higher this week driven by a strong start to the Q3 earnings season and solid consumer spending. Big banks kicked off the earnings season last week, topping growth estimates for net interest income, investment banking, and trading. Thus far, 71 S&P 500 companies have reported and 83.1% have beaten expectations. That compares to the long-term average of 66.9%. On the economic front, it was full speed ahead as retail sales showed a resilient consumer amid continued signs of easing inflation. That helped propel the Dow, S&P 500, and Nasdaq to their sixth straight winning week of gains.
This week’s consumer spending report was the latest economic reading pointing to a reacceleration in economic growth. That has helped draw investors to the economically sensitive companies comprising the Dow Jones Industrial Average, which scored a fresh record high on Friday, its 50th record finish so far this year. That’s a big vote of confidence and a broadening of the year’s rally now that the Fed cuts are providing a tailwind and assisting a soft landing. However, the possibility is increasing that the economy will reaccelerate more greatly than anticipated – a so called no landing scenario – which could result in the Fed pausing for fears of reinflating the economy. The Atlanta FedGDP Now model estimates Q3 GDP of 3.40%. That’s well above the 2-3% the U.S. economy had been trending pre-Covid. Wall Street has taken note of the recent strength with Goldman Sachs raising its 2024 year-end target for the S&P 500 from 5,600 to 6,000 to reflect expected earnings growth and the macroeconomic outlook. While bulls have been pushing their advantage in equity markets, the bond market has come under pressure due to the implication that rates may not decline as much as expected. Investor sales of bonds pushed the 10-year U.S. Treasury yield to 4.095% on Thursday. That’s up sharply from a mid-September low of 3.60%. Market sentiment and equity valuations are based on a very bullish narrative for higher growth with lower rates, but stronger growth could be the very thing that ultimately brings the rally to its end should the Fed grow cautious. For the time being however, earnings, employment, inflation and consumer spending have markets feeling giddy and with the election now three weeks away that should serve as the next distraction for investors once earning season concludes.
The Week Ahead
A light week for economic data with durable goods orders and home sales on deck.
Missing Piece of History Sells for Millions at Auction
A rare copy of the U.S. Constitution that was missing for centuries and found in North Carolina was finally up for auction last night. The auction was originally scheduled for September but was postponed due to Hurricane Helene. The roughly 237-year-old copy of the Constitution was found in 2022 at the Hayes Farm Plantation in Edenton, NC in an old, dusty two-drawer filing cabinet.
The Hayes Constitution is one of only 100 copies printed by the Secretary of Congress at the time, Charles Thomson, and only eight copies are believed to be left in existence with seven of them publicly owned. Only a handful of the original 100 were signed by Secretary Thomson before being sent to each state to begin the ratification process. The Hayes Farm document is one of the signed copies. Historians believe Thompson likely signed two copies for each of the original 13 states, essentially certifying them. According to the auction house that is selling the historic document, the last and only other recorded sale of a similar document was in 1891.
The history behind the document
Delegates to the Constitutional Convention in Philadelphia drafted a proposal for what would be the framework for the U.S. Constitution. The proposed Constitution was sent to the Confederation Congress in New York in September 1787. After a heated debate at the site of what today is the Federal Hall National Memorial in New York City, Congress resolved to send copies of the Constitution to the states for review and ratification.
To that end, a copy was sent to Samuel Johnston, the governor of North Carolina from 1787 to 1789, who lived at Hayes Farm. Johnston presided over North Carolina’s conventions where the U.S. Constitution was ratified.
The Hayes Farm Discovery
Samuel Johnston purchased Hayes in 1765. His son James Cathcart Johnston inherited the home when Samuel passed away. James completed construction on the residence known as Hayes in 1817, a year after his father’s death. Upon James’ death in 1865, the home was acquired by the Wood family and continued as a working farm. The Wood family owned and inhabited Hayes for more than 150 years. While still privately owned, Hayes Farm was placed on the National Register of Historic Places in 1974 and a year earlier was designated as a National Historic Landmark. The property consists of 194 acres and more than 20 structures. In the 1980s, most of the books, documents, and artifacts from the home — some going back to Johnston — were donated to the state of North Carolina and the University of North Carolina in Chapel Hill. Appraisers who were going through the house’s contents in 1983 found a rare copy of the Declaration of Independence that later sold at auction for a then-record price of $412,500. For some reason, the filing cabinet containing the Hayes Constitution had not been sorted through until recently, and the U.S. Constitution remained undiscovered for another four decades.
The historical significance of the Hayes Plantation has long been known, and a replica of the early 19th century Hayes Plantation library is displayed at the University of North Carolina, including the library’s original collection of nearly 1,800 books along with furnishings and artwork. In 2022, while the property was being cleared out and sold to North Carolina to be converted into a public historic site, the Hayes Constitution was discovered in a long-neglected room piled high with old furniture. The Constitution was found with a letter from George Washington asking for ratification.
History buffs were able to see the rare edition of the Constitution during a short window on September 13th at Federal Hall National Memorial in New York. The starting bid for the document was $1 million, and bids came quickly last night in increments of $50,000, mostly over the phone. After a brief lull following an $8.5 million bid, another caller put down a $9 million offer for the final and winning bid after less than eight minutes. The buyer has not been disclosed.