Markets pull back as consumer sentiment cools

Dow lost 57 (but above earlier losses), decliners over advancers 3-1 & NAZ was up 21.  The MLP index dropped 2+ to the 275s & the REIT index was off 1+ to 375.  Junk bond funds fluctuated & Treasuries had modest buying,lowering yields slightly.  Oil was off pennies in the 78s & gold advanced 31 to 2349 (more on both below).

Dow Jones Industrials 

Microsoft (MSFT), a Dow stock, will no longer ship Recall, an artificial intelligence tool that tracks user activity, when the company releases the Copilot+ PC next week, it announced yesterday following concerns about privacy & security.  The company wrote that Recall will shift from being a “broadly available” tool to a preview feature available only thru the Windows Insiders Program (WIP) when the new computer is released on Tues.  MSFT plans to make the AI feature available on all Copilot+ PCs soon after they receive feedback thru WIP.  “This decision is rooted in our commitment to providing a trusted, secure and robust experience for all customers,” Windows Corp VP Pavan Davuluri wrote in the blog post.  MSFT first introduced the Copilot+ PC on May 20 as a computer designed to run advanced AI programs, including Recall.  Recall is an AI tool that regularly takes screenshots to create a record of activity, allowing users to search for their previous actions.  Recall became a source of controversy soon after it was announced.  Industry experts have expressed concern over the potential for hackers to develop tools that can retrieve user information, including usernames & passwords.  In response to the backlash, MSFT initially announced that the Recall feature would be turned off by default, requiring users to opt in.  The company also implemented additional security protections, including an encrypted search database and a requirement that Recall users enroll in Windows Hello, which has users prove their identity through a PIN, fingerprint or facial recognition.  Its decision to delay Recall follows heightened concerns around security as the AI field evolves rapidly.  Last month, a US gov review board criticized the company's handling of China's breach of US gov officials' email accounts.  The stock rose 99¢.

Microsoft to delay launch of AI Recall tool due to security concerns

Consumer sentiment tumbled in Jun, despite largely resilient growth in the US economy, as higher prices remained a pain point for Americans.  The latest University of Michigan consumer sentiment survey showed sentiment hit its lowest level in 7 months during Jun.  The index reading for the month came in at 65.6, down from 69.1 in May & lower than expected.  "Assessments of personal finances dipped due to modestly rising concerns over high prices as well as weakening incomes," Survey of Consumers director Joanne Hsu said.  "Overall, consumers perceive few changes in the economy from May."  The current conditions index fell from to 62.5 from 69.6 the month prior, contributing to the decline in June's headline index.  Capital Economics North America economist Olivia Cross said this reading shows "households are now struggling more under the weight of higher interest rates and still-elevated consumer prices."  Year-ahead inflation expectations were flat at 3.3% from the month prior.  However, most respondents likely didn't have time to factor in recent positive inflation readings from May.  The interview window for the survey spanned from May 22 - Jun 12.  This means the last day consumers could submit survey responses was the same day that May's Consumer Price Index (CPI) was released.  Headline CPI rose 3.3% over the prior year in May, the lowest monthly headline reading since Jul 2022.

Consumer sentiment hits lowest level in 7 months

US home sales in May fell to among the lowest levels in the past decade, real estate brokerage Redfin (RDFN) reported, as both demand & supply remained sluggish in a high-mortgage rate environment.  Housing affordability in the US is at an all-time low.  Median home prices have scaled record highs & the 30-year fixed-mortgage rate is hovering at around 7%.  This has depressed both demand & supply.  The number of homes for sale remains roughly 25% below pre-pandemic levels.  Home sellers are holding onto lower fixed mortage rates secured on properties during an era of cheap debt in the face of higher rates currently.  In May, 408K homes were sold.  Only Oct 2023 (399K) & May 2020 (369K) in the past decade have recorded fewer home sales than last month, as per Redfin data.  Home sales fell 1.7% month-over-month in May on a seasonally adjusted basis & dropped 2.9% from a year earlier, while median home sale price rose to a record high of $439K, up 1.6% month-over-month & 5.1% year-over-year, as per Redfin.  Seasonally adjusted new listings rose 0.3% month-over-month in May & 8.8% from a year earlier.  Still, they were roughly 20% below pre-pandemic (May 2019) levels.  "Sales are sluggish because high homebuying costs are making both house hunters and prospective sellers skittish. And with so few homes for sale, buyers in some markets are getting into bidding wars, which is helping push home prices to record highs," said Redfin Senior Economist Elijah de la Campa.

US home sales crumble to among lowest levels of decade

Improved inflation data in the US raised hopes of a rate cut later this year & a stock selloff across Europe also lent support.  Spot gold was up about 1.3% at $2332 per ounce & US gold futures settled 1.3% lower at $2349 & bullion gained 1.8% for the week.  In wider financial markets, European stock indices dropped as French assets took a beating due to the country's political turmoil.  Cautious mood prevailed in the US stock markets, with investors pausing after strong gains in the S&P 500 & the NAZ indices.  Traders raised their bets to price in about 52 basis points (bps) of cuts (or 2 qtr-point cuts) by Dec-end after softer inflation data this week.  That was an increase from 37 bps last Fri, when a stronger-than-expected jobs report doused early rate cut hopes.

Gold set for first weekly gain in four on US rate-cut hopes

West Texas Intermediate (WTI) crude oil closed lower on a cloudy outlook for demand.  WTI crude oil for Jul closed down 17¢ to settle at $78.45 per barrel, while Aug Brent crude, the global benchmark, was last seen down 3 pennies to $82.72.  Prices have risen nearly 8% since touching a 4r-month low of $73.25 on Jun 4, on expectations for higher summer demand amid the US driving season & OPEC+'s decision earlier this month to extend 2.2M barrels of voluntary supply cuts thru the end of Sep.  Still, the health of oil demand is in question as US inventories climb, with the EIA reporting stocks rose for 4 of its last 5 weekly reports.  Competing demand forecasts are also clouding the picture, with diverging estimates released this week from OPEC, which stuck to forecast for demand to rise by 2.2M barrels per day this year, & the Intl Energy Agency, which cut its 2024 growth forecast by 0.1M bpd to 0.96M bpd as it sees demand slowing.

WTI Crude Closes Lower Amid Cloudy Demand Signal

European turmoil rattled nerves bringing new elections & continuing high interest rates which will be around for some time worried already nervous investors this week.  Improved inflation data was offset by lower consumer confidence in the US.  Guidance by the FED for only 1 rate cut this year did not help matters.  When all was said & done, Dow finished down 210 for the week.