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Afternoon Note

Household Wealth

By Charles Payne, CEO & Principal Analyst
6/7/2018 2:03 PM
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Rising house prices has contributed to an increase in the housing wealth effect.   In the Federal Reserve’s latest release of its Flow of Funds report, households and nonprofits net worth rose to $100.8 trillion during the first quarter of 2018.  An increase in housing helped offset the decline in equity prices during the quarter.  This is the first time the $100 trillion level has been broached.

Gains in housing coupled with a strong labor market have put households in a better financial position than they have been in for quite some time.  Evidence of this can be seen in the strong run retail stocks have had.  We have been pounding the table on consumer discretionary stocks. 

Today, Conn’s (CONN), a specialty retailer that operates in two segments, 1. selling durable consumer goods such as furniture, mattresses, home appliances as well as consumer electronics and, 2. providing short to medium term financing to constrained consumers with limited banking options, reported earnings that beat the street.  Earnings of $0.39 per share were $0.12 ahead of the consensus estimate, while revenues of $358.4 million were also ahead of the consensus estimate of $355.1 million.  CONN is trading up $5.55, 21.64%, @ $31.20.

While one hand the report was great news, on the other hand, CONN caters to the lower income/lower credit consumer and this adds risk, and for many economists, raises red flags.   However, net worth to disposable income is close to historic highs, as household debt service payments as a percentage of income are much lower than bubble-era levels.

Initial Claims

Speaking of a strong labor market, initial jobless claims dipped by 1,000 to 222,000 in the seven days ended June 2 versus the forecast for a 225,000 reading and is near a 50-year low. A better gauge, the 4-week moving average for initial claims rose by 2,750 to 225,500.

Continuing claims rose by 21,000 to 1.74 million for the week ended May 26.  The 4-week moving average for continuing claims decreased by 13,250 to 1.73 million, the lowest reading since December 1973.  The numbers are consistent with a strong labor market. 

Equity markets are mixed today: The Dow is up 0.29% while the Nasdaq is down 1.0%, led by declines in technology as some profit taking sets in.  Seven S&P sectors are in the green, with four down.  The energy sector is leading today, up 2% on news that Venezuela is having a difficult time fulfilling contracts.  The dollar is lower as well and adding to the strength in WTI.


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