The Daily Tearsheet

Stocks are higher this morning after the SpaceX IPO got priced last night and on hopes of a resolution in Iran. Bonds and MBS are up small.

Oil is trading at the lowest level in 2 months.

Despite yesterday’s hideous PPI report, the markets took down their forecast for rate hikes this year. On Wednesday, the markets saw a 72% chance of a hike this year which is now 58%. Both the oil market and the Fed Funds market seem to have more optimism on Iran than the general public. Traders versus journalists, I suppose.

SpaceX priced its IPO last night at $135 per share. The ticker is SPCX. With Anthropic and Open AI waiting in the wings to go public, this will be a good test of the public’s appetite for IPOs.

Investors buying SpaceX are paying $1.77 trillion for a company with $18.7 billion in revenue last year and no profits. For those keeping score at home, that is 94 times 2025 revenues. Of course nobody is buying the stock for fundamentals at this point – this will be a pure momentum play. If the crowd loves it, then professional money managers will have to own it fundamentals be damned. The prospectus is here.

Once they go public, the new moniker for the erstwhile acronym for the market darlings (FAANG) will be replaced by MANGOS, which represents the stocks Meta, Anthropic, Nvidia, Google, OpenAI and SpaceX.

Homebuilder Lennar announced earnings per share of $1.24 versus $1.81 a year ago. Revenues from homebuilding fell 2% YOY, driven by a 5% decrease in average selling prices and a 2% increase in deliveries. The ASP of $317,000 reflects a whopping 12.9% in incentives. Typical incentives are around 4% – 6%, which gives you an idea of how much the company is giving away to move the merchandise. Gross margins fell to 15.6%, driven by higher land costs and lower revenues per square foot.

CEO Stuart Miller said: “Our second quarter of fiscal year 2026 was defined by the same stubborn headwinds that have challenged the housing market for the past several years – persistently elevated mortgage rates, constrained affordability, and cautious consumer sentiment, exacerbated by geopolitical uncertainty creating a resurgent inflation reading of 4.2% driven by higher energy prices.”

Part of the homebuilding industry’s woes are being driven by higher input costs (i.e. sticks and bricks). In yesterday’s PPI report, inputs for residential construction rose 1.3% in May and 6.9% on a YOY basis. This is being driven primarily by higher energy costs, not tariffs. Actual building materials rose 0.4% MOM and 4.4% compared to a year ago. The NAHB produced this chart:

Rate lock volumes declined about 2% in May, according to MCT. Purchase volume remained steady, while refi activity decreased. “The industry should just continue to bunker down and shield themselves, staying disciplined with lock policies and procedures,” said Andrew Rhodes, Head of Trading at MCT. “A lot of volatility is still ahead of us.”

On Monday, Eris Futures will start trading SOFR options. This is a great way to hedge some of the convexity risk in your NQM portfolio and MSRs.

Stocks are higher as fighting continues in Iran. Bonds and MBS are up small.

Ugly PPI report. Wholesale prices rose 1.1% in May, according to BLS. Nearly 80% of the increase was due to goods. Services rose 0.3%. Gasoline accounted for half the increase in goods. If you strip out food and energy, the numbers are still hideous. We had a 0.4% increase for the month, which works out to be 4.9% annually.

Bonds seem to be taking the number in stride, but this was a big miss.

Treasury did a 10 year auction yesterday. The yield came in at 4.538% with a bid / cover of 2.57. The bid / cover ratio of 2.57 indicates decent demand. International buyers were the aggressive ones.

Home equity withdrawals (i.e. seconds and cash-0ut refis) are increasing, according to the ICE Mortgage Monitor. With credit card debt at record highs, many borrowers are finding it makes sense to roll all of that 20% interest rate debt into a lower rate mortgage. Second-lien withdrawals hit an 18 year high, while cash-outs were the highest since 2021.

“The housing market continues to be defined by the lock-in effect,” said Andy Walden, Head of Mortgage and Housing Market Research at ICE. “Millions of homeowners are sitting on first mortgages with rates well below current market levels, making second liens and HELOCs an attractive way to access equity without giving up those loans. While higher mortgage rates have reduced refinance opportunities and softened affordability gains in recent months, home prices continue to firm across much of the country and affordability remains improved from year-ago levels.”

“As refinance opportunities become more limited, home equity products are playing a larger role in helping homeowners access liquidity and meet financial goals,” said Bob Hart, President of ICE Mortgage Technology. “Lenders that can effectively identify, engage and serve those borrowers across both mortgage and home equity channels will be best positioned to capitalize on evolving consumer demand.”

Loan officers who are not asking their existing borrowers about their other credit card debt are leaving money on the table. These products can save borrowers a lot of money.

US regulatory costs related to homebuilding increased 40% from 2021 to 2026, according to the NAHB. The study estimates that 26.4% of the cost of a new home (or over $131k) is caused by regulatory compliance.

It appears most of these costs are driven by state and local governments, so there is not good lever for the Federal government to use. This will be a fight more by NIMBYs and YIMBYs.

M&A in the resi space continues, as Figure, a blockchain finance company is acquiring Kiavi. “Figure is relentless in our pursuit of moving the capital markets onto blockchain rails, and nine months past our successful IPO, this Kiavi transaction is a further pole vault into tokenization, first-lien diversification and our agentic AI platform,” said Michael Tannenbaum, Figure CEO. “Adding Kiavi’s RTL and DSCR capabilities into our partner network will symbiotically supercharge their growth and the growth of our consumer loan marketplace.”

“For the past 13 years, Kiavi has been focused on powering our data flywheel and proving what’s possible when technology and industry expertise converge,” said Arvind Mohan, CEO of Kiavi. “This transaction represents a massive leap forward for the asset class. With Kiavi’s industry-leading platform powered by Figure’s innovative blockchain marketplace, we have the opportunity to deliver an entirely new – and unmatched – standard of reach, reliability, and execution.” Following the deal close, Mohan will join Figure’s executive team as Chief Business Officer.

Stocks are lower this morning as tech continues to get beaten up. Bonds and MBS are flat.

The consumer price index rose 0.5% MOM and 4.2% YOY in May, according to BLS. Energy and shelter drove the increase. These numbers were in line with street expectations. If you strip out food and energy, prices rose 0.2% MOM and 2.9% YOY. These were a touch below expectations.

Energy prices are up 23% YOY. Food was up 3.1% and shelter 3.4%.

Existing home sales rose 3.2% in May, according to NAR. Unsold inventory stood at 1.55 million units, which represents a 4.5 month supply. This is still on the small side, however it is an improvement from the 3.5 month we were seeing a year or two ago. The median home price rose 1.2% YOY to $429,300. The housing affordability index rose as well as affordability improved across all regions.

“More Americans are on the move, with home sales rising to the highest level since December. This is great news for the housing market and the economy,” said NAR Chief Economist Dr. Lawrence Yun. “Improving affordability is helping drive this momentum. Even with mortgage rates ticking up compared to earlier in the year, they remain lower than a year ago and are essentially at the long-term historical average. Income gains are also outpacing home price growth by a small margin in most parts of the country.”

“The new record-high May home price reflects solid fundamentals for homeowners and ongoing supply constraints,” Yun said. “Only 1% of all home sales involved a foreclosure or an underwater situation in which the sale price could not cover the outstanding mortgage balance. This shows that homeowners are on solid financial footing.”

As time goes on, the rate lock in effect becomes smaller. On one hand, more and more mortgages have 6.5% rates and not 3.5% rates. This reduces the incentive to stay put for rate reasons. Second, as the era of 0% interest rates fades into history, recency bias takes over and people now think a mortgage rate of 6.5% is normal and 3.5% mortgage rates aren’t coming back. People are less likely to want to wait it out for lower rates to move.

Mortgage applications rose 10.8% last week as purchases increased 7% and refis rose 15%. There was an adjustment for the Memorial Day holiday which might be introducing some noise into the numbers.

“Mortgage rates were volatile last week as news from the Middle East continues to drive markets,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “While the average rate was up slightly, with the 30-year fixed rate now at 6.6%, there were opportunities where borrowers were seeing somewhatlower rates. Both refinance and purchase applications rebounded coming out of the Memorial Day holiday week, with refinance applications up 15% and purchase applications up 7%.”

Stocks are higher this morning on no real news. Bonds and MBS are flat.

Small business optimism declined in May, according to the NFIB. The uncertainty index increased 3 points and is well above its historical average. Sales improved, however the outlook remains pessimistic. The employment index was flat although 31% reported increasing compensation. Hiring plans declined to a 6 year low.

Inflation continues to be an issue, with a net 36% of all owners reporting that they increased average selling prices. This is the highest reading since March 2023.

Part of the economy is on a sugar rush – almost all related to AI investment spending and it’s flying high. The stock market is posting new highs, but again, mostly due to that one soaring sector. Meanwhile, gas prices have spiked reflecting a reduction in the global oil supply, but also the risk premium that war has produced. Oil is a cost component in just about everything, so its rising price shows up in just about everything. A net 36% (seasonally adjusted) of the owners reported raising their selling prices, well above the historical average of net 13%. This leads right into CPI inflation, which is too strong to give the Fed license to reduce rates. It may even consider raising its policy rate.

The employment picture looks increasingly gloomy, as job openings continue to decline. Openings fell to 2020 levels as did hiring plan —
recession numbers without a recession. Sales prospects are not strong, but not falling apart. Perhaps the economy is becoming bifurcated, one piece driven by AI spending, rising asset prices (e.g. stocks) and spending by higher income consumers benefiting from AI, while the other piece suffers from rising costs.

Uncertainty is the enemy of growth and investment, and it is high. Much is related to the Iran War and its impact on the global oil supply and other commodities, the sooner it’s resolved, the quicker some “normality” will be restored.

Real estate price appreciation improved in May, according to the Clear Capital Home Data Index. Nationally, home prices rose 1.3% on a quarterly basis and 1.9% annually after rising 0.6% quarterly in April. Every region rose on a quarterly basis, and only one was negative on an annual basis.

The hip-to-be-square trade continues, with Rochester NY taking the top spot for home price appreciation followed by Milwaukee. Other MSAs in the top 15 include Providence, Birmingham, St. Louis and Pittsburgh. On the losing side, it still remains dominated by the darlings of COVID with a lot of Sun Belt MSAs. Florida is well-represented as Jacksonville, Orlando and Tampa all registered in the bottom 15.

In the blog commentary, I discuss delinquencies and which parts of the market are struggling the most.

OpenAI the parent company of Chat GPT filed confidentially for an IPO. Since it is a confidential filing, the actual finances of the company will remain undisclosed until closer to the filing. “We recently submitted a confidential S-1. We expect it to leak so we’re just announcing it. We have not decided on timing yet; it may be a while because there are things we want to do that are likely easier as a private company. But it’s a complicated set of tradeoffs and this gives us the option to go public sooner if that ends up being best.”

The company is expected to have a market cap of $1 trillion. Its current private market value is $852 billion.

OpenAi, Anthropic and SpaceX all plan what will be massive IPOs coming up. This will be an interesting test for the stock market. If these companies follow the normal pattern, they will sell a tiny portion of the stock to the public, hoping that demand for a limited number of shares will goose the value.

Stocks are rebounding after Friday’s bloodbath in tech. Bonds and MBS are down.

Israel and Iran exchanged fire over the weekend. Trump told both sides to knock it off and now Iran is saying it has ended its waves of strikes. This has to be the most hostile cease fire I have ever seen.

The week ahead will be dominated by inflation data, with the consumer price index on Wednesday and the Producer Price Index on Thursday. Aside from the inflation data we will get existing home sales and consumer sentiment. Treasury will do a 10 year auction on Wednesday.

We are also in the quiet period ahead of the June FOMC meeting so we won’t have any Fed speakers. Lennar will announce earnings on Thursday.

The jobs report on Friday prompted the Fed Funds futures to re-calibrate the chances for rate hikes this year. The June futures still overwhelmingly see no change, but the December futures see an over 70% chance of a rate hike this year.

The June meeting will give us a fresh set of economic projections and a new dot plot

Cleveland Fed President Beth Hammack had this to say on Friday after the jobs report:

The Federal Reserve’s inflation objective is 2 percent.

That number isn’t just theoretical; price stability is a foundation for businesses, consumers, and investors to make sound economic decisions. It’s key to economic growth and maximum employment in the longer run.

While I never make too much of any one data point, today’s jobs report reaffirms that the labor market appears to be roughly in balance. The unemployment rate remaining stable at 4.3 percent is right around my definition of full employment.

By contrast, inflation is telling a different story. It’s high, moving higher, and I believe persistently high inflation is the bigger concern.

When I’m out in the District, I’m starting to hear from people that they don’t think things are going to get better any time soon. It would be a bad development if consumers, businesses, and financial markets begin to expect higher inflation in the future. Such a shift in expectations would warrant decisive action.

For today, it’s reasonable to keep rates steady given the uncertainties around the economic outlook. But if recent trends continue, it may soon be appropriate to act.

Stocks are lower this morning on no real news. Bonds and MBS are flat.

The economy added 172,000 jobs in May according to the BLS. This was well above Street expectations of 85,000. The unemployment rate was steady at 4.3%. The labor force participation rate was steady at 61.8%, while the employment-population ration inched up. Average weekly earnings were up 3.4%, in line with expectations. The number of people unemployed fell 66k, of which 17k exited the workforce and the remainder got jobs.

It appears that the low hire / low fire environment might be improving.

Nonfarm productivity rose 0.3% in the first quarter as output rose 1% and hours worked rose 0.7%. Unit labor costs rose 1.8%. San Francisco Fed President Mary Daly said that evidence of productivity is everywhere, but it has yet to really show up in the data.

“Productivity growth is everywhere except in the data,” said San Francisco Federal Reserve Bank President Mary Daly while speaking about the impacts of artificial intelligence.

“It’s business process change that generates sustained productivity gains, and firms are just at the early stages of interrogating, learning the technology, using the technology, and then thinking, how do I change my business so it doesn’t actually look the way it once did,” she said.

“Think of electrification. We had electricity for a long time before we got the rapid productivity growth that came from electrification,” said Daly. There will be a S curve for productivity as AI continues to develop.

Speaking of AI and productivity, announced job cuts rose 16% in May to 97,006 according to outplacement firm Challenger, Gray and Christmas. This is the highest May since 2020. “On top of the headline AI story, we’re seeing a sharp rise in cuts tied to acquisitions and mergers and a jump in bankruptcy-related losses, which tells me companies are restructuring aggressively as they reposition for an AI-driven economy,” said Andy Challenger, labor and workplace expert and chief revenue officer of Challenger, Gray & Christmas.

“The labor market is being reshaped by technology in real time. AI is now the leading reason companies give for cutting jobs and the primary industry citing it is Technology. Technology, already the year’s biggest job cutter, saw its steepest month of cuts since early 2023, even as it remains the sector with the most hiring plans this year,” said Challenger.

Stocks are lower this morning after disappointing numbers from Broadcom. Bonds and MBS are flat.

The services economy improved in May according to the ISM Services Report. The index improved from 53.5 to 54.5, driven by a jump in new orders and inventory build. The employment index contracted. The inventories index increased markedly and prices rose as well. This is similar to what we saw in the ISM Manufacturing Report- companies are building inventory presumably to get ahead of price increases.

“Business activity hit its second highest reading since achieving the same reading of 57.7 percent in October 2024, and the New Orders and Supplier Deliveries indexes hit their third highest readings in that time frame. The Employment index, however, hit its second lowest reading since September 2025, 0.5 percentage point below its 12-month average. Respondents commented frequently that their companies had instituted hiring freezes or were not backfilling vacated positions, however, most industries reported that they were holding flat in employment month over month. Respondents reporting that new orders were higher than last month most frequently attributed this to seasonality.

The economy grew at a “slight-to-moderate” pace in the past 6 weeks according to the Fed’s Beige Book. They noted that consumer spending is following the K-shaped recovery, where the higher incomes are doing well and the lower half is struggling.

As we saw in the ISM data, manufacturing is strong. Not sure how much of that is companies trying to get ahead of inflation, suppliers switching to domestic manufacturers or data center capital expenditures. Regardless, it is a welcome development.

Employment remained flat, with increased hiring noted in manufacturing. Wage growth was in line with inflation. The labor market remains in a low hire / low fire state. Prices increased at a “moderate to strong” pace noting that energy costs due to the Iran situation are spilling over into packaging, fertilizer and food.

Home sellers are pulling their homes off the market at the fastest pace since 2020, according to Redfin. Nearly 5.8% of listings were taken off as buyers balk at high home prices and rising mortgage rates. “Sellers are still getting used to the post-pandemic normal,” said Patricia Ammann, a Redfin Premier agent in Arlington, VA. “Prices aren’t soaring like they were five years ago–high gas prices and the rising cost of living overall is trickling down to the housing market, making buyers much less likely to bid prices up. Buyers know they have negotiating power, often offering under the asking price and completing inspections, but some sellers just won’t budge.”

The private equity / SaaS blowup is not over. It is early June and many of these funds permit quarterly redemptions. We are seeing several put up gates, which limit how much an investor can withdraw. Partners Group, a Swiss PE firm just put up gates, and we have seen credit funds do the same. This seems to be relatively contained, but it is worth watching as many of the funds that buy non-QM paper swim in the same waters as these PE funds and credit problems have a habit of showing up in strange places.

Stocks are lower this morning as the US and Iran exchange fire. Bonds and MBS are down.

Job openings increased to 7.6 million in April, according to the JOLTs job openings report. This is an increase of 731,000. Most of the increase was attributable to a 668,000 increase in professional and business service jobs. Health care and social assistance also increased. The increase in professional and business service jobs is interesting because that sector should be ground zero for AI job losses.

The report was still a mixed bag however. Total hires in April fell by about 400k and the quits rate dipped from 2% to 1.9%.

The private sector added 122,000 jobs in May, according to ADP. Trade, Transportation and Utilities added 36,000 jobs, while professional and business services added 11,000. IT and natural resources fell. “Hiring was more broad-based in May than we’ve seen in the last few years. The labor market continues to show sustained momentum going into the summer hiring season.”

Cleveland Fed President Beth Hammack said the Fed might need to act if inflation doesn’t start falling. “There’s a growing risk that inflation could remain elevated if energy costs do not come down quickly and if businesses feel they have no choice but to raise prices,” Hammack said. “This would be a bad development.”

“Based on the data, I’m more concerned about the growing risks of persistently elevated inflation than the risks to full employment, and that monetary policy may not be sufficiently restrictive to bring inflation down to 2%.”

“It’s not just oil; it’s not just tariffs. It’s health insurance; it’s broader energy prices. There are a lot of underlying material costs, so I’m seeing it in a lot of different places, and that’s what I need to focus on.”

Bill Pulte is has been named to the Director of National Intelligence, replacing Tulsi Gabbard who is resigning. He will supposedly remain in charge of FHFA, but this probably isn’t a good development for those who were hoping for Fannie and Freddie to be released. Pulte is a housing guy, so I’m not sure what he knows about national security. Needless to say, Democrats are nonplussed, remembering his investigation of Fed Governor Lisa Cook over occupancy fraud.

Mortgage applications fell 2.5% last week as purchases fell 3% and refis fell 2%. “The prospect of easing energy prices given the evolving situation in the Middle East brought mortgage rates slightly lower last week. The retreat in rates, however, did not lead to an increase in mortgage applications,” said Joel Kan, CMB, MBA’s Vice President and Deputy Chief Economist. “Purchase applications remained ahead of 2025’s pace but were at its slowest weekly pace since April, and refinance activity was at its weakest since last June.”

Stocks are lower this morning on no real news. Bonds and MBS are up.

The manufacturing economy improved in May, with the ISM Manufacturing Index rising 1.3 points to 54. New orders expanded for the fifth straight month, while production increased as well. Prices remain elevated, however the are going in the right direction. Employment improved, although it is still in contraction mode.

“In May, U.S. manufacturing activity remained in expansion territory, growing at a faster pace compared to the month before. Of the five subindexes that make up the PMI^®, the New Orders index indicated faster growth compared to the previous month, the Supplier Deliveries index stayed the same, the Production Index grew at a faster rate, and the Employment and Inventories indexes remained in contraction, though both improved.

“In May, 25 percent of the comments were positive and 69 percent negative, with a 1-to-2.7 ratio of positive to negative sentiment. Among comments, the Iran war was mentioned in 42 percent and tariffs in 18 percent; 57 percent of the panelists mentioned pricing volatility as an issue for their companies.”

Construction spending rose 0.4% MOM and 0.9% YOY according to the Census Bureau. Overall private residential construction rose 0.8% MOM and 1.7% YOY. Single-family increased 1.4% MOM but fell 1.9% YOY. On the other hand multifamily fell 0.3% MOM but rose 1.1% YOY.

S&P’s Manufacturing PMI confirmed what the ISM data said: that manufacturing is improving. Output growth rose to the fastest rate in 4 years. That said, we might be seeing the beginning of inflationary expectations feeding into the economy as manufacturers are stocking inventory.

“The headline PMI has hit a four-year high, with strong factory production growth for a second successive month in response to a further marked upturn in order books, but since the outbreak of war in the Middle East we have seen production and demand buoyed by stock building as companies worry over rising prices an
supply difficulties.

“This stockpiling was again widely evident in May and makes it hard to take an accurate reading on the underlying health of the manufacturing economy, as growth will cool once this stock build has run its course.

“The incidence of supply chain delays is the highest since August 2022, with the buying of safety stocks not only adding to the supply squeeze from the closure of the Strait of Hormuz but also pushing prices higher for a wide variety of inputs. The resulting steep jump in producer costs sends a worrying signal that broader economy inflation has further to rise in the coming months.”

When the Fed talks about “inflationary expectations remaining well-anchored” what they mean is that inflation expectations are not driving behavior. That seems to be changing at least according to this report. If companies begin to front-load purchases in order to beat expected price increases, this can exacerbate inflation. While it doesn’t seem to be happening yet on the employment side, the behavior of manufacturers implies that this is getting embedded into the economy. The big question is whether this is a temporary phenomenon related to the situation in the Persian Gulf or it is something more permanent.

I wouldn’t read too much into one single report, however it does confirm what the Fed is concerned about. The bigger concern would be a wage – price spiral where inflation rises and workers demand higher compensation, which increases costs and drives inflation even higher. This is the classic wage-price spiral and that was a common phenomenon in the 1960s and 1970s.

The low hire / low fire labor market doesn’t appear to be conducive for big wage increases, especially as AI threatens to eliminate many jobs. That said, this bears watching and has the potential to push the Fed towards a more hawkish stance. The December Fed Funds futures agree, with markets predicting a 50-50 chance of a rate hike this year.

Stocks are higher despite new attacks in the Strait of Hormuz. Bonds and MBS are up.

The week ahead will be dominated by the jobs report on Friday. We will also get ISM data and construction spending. We will also have speeches from Beth Hammack, Neel Kashkari, Michael Barr and Tom Barkin.

The US Navy is quietly guiding ships through the Strait of Hormuz. The Navy is having the ships “go EMCON” or not transmit data during the passage, which is meant to not tip off the Iranians that someone is coming through. This makes it more difficult for shipping trackers to know who is coming through. Regardless, this should help increase petroleum supplies for the rest of the world and put additional pressure on oil prices.

“Though U.S. forces are not escorting, we continue to communicate and coordinate with commercial ships seeking to freely and safely transit the Strait of Hormuz, a critical international corridor for regional and global economies,” Capt. Tim Hawkins, a Central Command spokesman, said in a statement on Saturday.

Berkshire Hathaway is buying homebuilder Taylor Morrison for $6.8 billion in cash. The $72.50 price works out to be a 24% premium to Friday’s closing price. The homebuilders have gone nowhere for the past year as hopes of lower rates have been dashed.

Below is a chart of the S&P SPDR homebuilder ETF. The builders are an early stage cyclical – the type of stock that performs best when the economy is coming out of a recession. Given that the homebuilders are sitting on a glut of inventory, it is an odd time to buy one.

Berkshire is paying 11.3x expected 2027 earnings, which isn’t an unreasonable multiple given that gross margins for the sector are on the low side as builders cut prices to move the merchandise.

Rent prices continue to climb, despite rising interest rates and flatlining real estate prices. The median asking rent rose 4.5% in the fourth quarter compared to a year ago.