Stocks are lower this morning on no real news. Bonds and MBS are down.
Iran fired missiles at two commercial ships, just as traffic is returning to normal in the Strait of Hormuz. So far markets are taking it in stride.
The services economy continued to expand in June according to the ISM Services Report. That said, expansion did decelerate a touch compared to May. New Orders and Activity decelerated, while employment moved from contraction to expansion. Notably, price inflation decelerated (meaning prices are still rising overall, just not as widespread or as rapidly).
“Respondents in June commented less frequently about pricing impacts on petroleum products, while tariff impacts continued to be a theme for increased pricing pressure. The Inventories Index dropped to its second-lowest level since October 2025, indicating that the buy-ahead phenomenon from earlier in the year may be over. The Imports Index dropped into contraction territory for the first time in five months, down from a spike to 55.2 percent in March, its highest level in over two years. The Backlog of Orders Index reached its second-highest level in almost four years. These readings, taken with respondent commentary, seem to indicate that supply chains are stabilizing amid sustained business activity, giving confidence to businesses that selective, yet modest, increased employment is warranted. World Cup-related hiring in the U.S. likely contributed to the increase to the Employment Index. Of the 18 services industries, nine of them — representing over 58 percent of U.S. gross domestic product (GDP) — reported higher employment levels in June. This represents widespread confidence that hiring is again warranted to support activity levels.”
With the energy shock largely over (at least with respect to oil prices) and tariffs beginning to roll off (the 4 month extension expires this month) we should see a marked improvement on pricing pressures, which will hopefully keep the Fed at bay.
The Atlanta Fed GDP Now index sees only 1.3% growth for Q2. Note that the big decline in late June is due to trade balance estimates. Consumption and investment are still at levels associated with 3% growth. In other words, GDP growth will be sluggish, but it won’t necessarily “feel” sluggish.
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Despite the narratives in the press Gen Z is buying houses and accounted for 1 in 5 purchase locks in the second quarter. Gen Z is still in their 20s, so this is good news. Gen Z accounts for a third of the first time homebuyer loans and 27% of FHA lending. These borrowers tend to have shorter credit histories, which generally means lower credit scores.
It looks like home price appreciation accelerated in June, according to ICE’s housing price index. It rose 0.29% MOM and 1.3% YOY. We are still below inflation, which means that real (inflation-adjusted) prices continue to fall and are now about 5% off of peak levels. As wages increase, affordability will return, especially if inflationary pressures decrease and allow the Fed to hold rates here.
