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Globe and Mail
16 minutes ago
- Globe and Mail
Fed's dilemma between AI and housing
Tension between the Federal Reserve's jobs and inflation mandates may be less worrisome than a dilemma over whether to focus on the spluttering housing market or rocketing tech infrastructure spending. By most metrics, the U.S. central bank is still missing its 2-per-cent inflation target, and neither market-based nor household inflation expectations express much confidence that it will meet it any time soon. And that's before factoring tariff rises. The debate about the labour market, meanwhile, is clouded by the modest layoffs and new jobless claims as well as the still low jobless rate, which likely reflects halted immigration and worker shortages. Intense political pressure aside, none of these standard checklists argue for the Fed to resume cutting interest rates with gusto - or even easing at all. But the central bank's conundrum on what to do next may be best captured by the contrast between the artificial intelligence boom and what increasingly looks like an ailing housing market. Easing now to support the latter would most likely supercharge the tech capex binge and kill any chance the Fed has of meeting its inflation goal. Yet keeping rates high to manage the excesses of the AI explosion could spell deeper trouble for a housing sector that accounts for well over 10 per cent of GDP. A gauge of U.S. homebuilder sentiment fell this month to its lowest level in more than two-and-a-half years, with more than a third of residential construction firms cutting prices and two-thirds offering some form of incentive to lure buyers put off by still-high mortgage rates. New housing inventory is near levels last seen in late 2007. Even though housing starts picked up in July, total permit issuance - a guide for future activity - fell 2.8 per cent to a five-year low. One major problem is rooted in homeowner stasis due to the previous period of ultra-low interest rates. While the average rate on a 30-year fixed-rate mortgage has started to fall, hitting a four-month low at 6.67 per cent in the week ended August 8, according to the Mortgage Bankers Association, it remains more than 2.5 percentage points above the average rate of all outstanding mortgages. With no portable mortgages from property to property, homeowners with cheap mortgages have been loath to sell and move given that they would need to obtain substantially pricier financing for any new home purchase. And this situation has helped push the median price on existing home sales above those on new home sales for the first time on reco This distortion forms one of the arguments for the Trump administration's push to get interest rates down urgently. But Jason Thomas, head of global research at Carlyle, has pointed out that there is another real estate trend the Fed needs to consider: the hundreds of billions of dollars being plowed into AI-related data centers - and pledges for trillions more - as this industry's breakneck pace is set to accelerate. Thomas reckons the massive demand for capital involved in this massive AI buildout - along with the huge demand on savings from a federal budget deficit projected at more than 6 per cent of GDP over the next three years - means lower interest rates now could create serious risks of overheating the entire economy. 'The issue is not whether high rates are 'crowding out' interest-sensitive sectors like for-sale housing. Clearly, they are. The question for policymakers is how much crowding out is necessary to meet price stability targets,' he wrote on Tuesday. 'The Fed has proven unable to hit its inflation target while high rates have depressed housing-related incomes and spending,' he concluded. 'What are the chances that target is hit after a series of rate cuts causes the sector to rebound?' Of course the Fed is setting policy that typically won't have a pronounced effect for at least a year, and it may decide the economic situation will be different by then. Higher unemployment may result from a weak housing sector, a tariff-related consumer retrenchment may ensue, or perhaps AI spending could slow down. But pre-empting those outcomes now would require a giant leap of faith rather than scientific forecasting. Inflation expectations and the long end of the bond market may pass harsh judgment on a hasty easing. Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.
Globe and Mail
16 minutes ago
- Globe and Mail
Retail Sales Show Resilience in July: Sector ETFs in Focus
Retail sales in the United States increased 0.5% sequentially in July 2025, in line with market expectations and following an upwardly revised 0.9% rise in June. The largest increases were seen in sales at motor vehicle & parts dealers (1.6%), and furniture & home furn. stores (1.4%). Other gains were seen in sales at sporting goods, hobby, musical instrument, & book store (0.8%), nonstore retailers (0.8%), clothing & clothing accessories stores (0.7%) and gasoline stations (0.7%). Winning Areas Below, we highlight a few areas and the related ETFs & stocks that may benefit handsomely from the retail sales. Online Sales Nonstore retailers (e.g., online sales) saw a 0.8% sequential increase and an 8.0% yearly gain. ProShares Online Retail ETF ONLN – The ProShares Online Retail Index is a specialized retail index that tracks retailers principally selling online or through other non-store channels. The fund charges 58 bps in fees. AMZN – is one of the largest e-commerce providers, with sprawling operations in North America, now spreading across the globe. The fund has a Zacks Rank #3 (Hold). Clothing Stores Sales gained 0.7% sequentially in July and 5% year over year. SPDR S&P Retail ETF XRT – The fund gives exposure to U.S. retail stocks. Apparel retail takes about 21% of the fund. The fund charges 35 bps in fees. Levi Strauss & Co. LEVI – The Zacks Rank #1 (Strong Buy) company designs and markets jeans, casual wear and related accessories for men, women and children under the Levi's, Dockers, Signature by Levi Strauss & Co. and Denizen brands. Furniture & Home Furnishing Stores Sales for Furniture & Home Furnishing Storesrose 1.4% sequentially and 5.1% year over year. iShares U.S. Consumer Focused ETF IEDI – The fund gives exposure to U.S. companies, with a focus on consumer spending and consumer goods. The fund charges 18 bps in fees. Home Depot HD – The Zacks Rank #3 company is the world's largest home improvement specialty retailer. Health & Personal Care Stores Sales for Health & Personal Stores increased 0.4% sequentially and 5.6% year over year. iShares U.S. Healthcare Providers ETF IHF – The fund seeks investment results that correspond generally to the price and yield performance of Dow Jones U.S. Select Health Care Providers Index. The fund charges 40 bps in fees. CVS Health CVS – The Zacks Rank #2 (Buy) company is a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care. Boost Your Portfolio with Our Top ETF Insights Zacks' exclusive Fund Newsletter delivers actionable information, top news and analysis, as well as top-performing ETFs, straight to your inbox every week. Don't miss out on this valuable resource. It's free! Get it now >> Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Inc. (AMZN): Free Stock Analysis Report The Home Depot, Inc. (HD): Free Stock Analysis Report CVS Health Corporation (CVS): Free Stock Analysis Report SPDR S&P Retail ETF (XRT): ETF Research Reports iShares U.S. Healthcare Providers ETF (IHF): ETF Research Reports iShares U.S. Consumer Focused ETF (IEDI): ETF Research Reports ProShares Online Retail ETF (ONLN): ETF Research Reports Levi Strauss & Co. (LEVI): Free Stock Analysis Report This article originally published on Zacks Investment Research (
CBC
24 minutes ago
- CBC
Air Canada resumes flights after strike deal
Aug. 19, 2025 | A strike at Air Canada is over, but it could be days before flights get back to normal. Five Canadian soldiers are suspended after a Nazi salute video surfaces. And inflation cools, except at the grocery store.
