Higher Stocks and Retail Sales, Housing in Limbo, and Small Caps Ready to Rise?

July 20, 2025

INFLATION RISES A BIT: In June, the Consumer Price Index (CPI) increased by 0.3%. The 12-month inflation rate rose to 2.7% after being 2.4% and 2.3% in the two prior months. "Core" CPI, without food and energy prices, rose 0.2% and the 12-month number was 2.9%, up from 2.8% last month. In the last five months, CPI has been running at a 1.8% annualized pace.

U.S. RETAIL SALES BOUNCE BACK: After declining for two months, U.S. retail sales increased in June by 0.6%. It was a broad-based gain with 10 out of the 13 sales categories rising. The largest rise was in the auto sector, which rose 1.2% after a 3.8% drop in May (up 6.5% for the year).

STOCKS RISE TO NEW HIGHS AGAIN: U.S. stock indices hit new highs again this past week. Taiwan Semiconductor Manufacturing reported record earnings which helped semiconductor stocks rise. Energy stocks such as Talen Energy (rising 24%), Constellation Energy, and Vitra (both up over 4%) all did quite well. Wall Street firms Interactive Brokers and Schwab posted strong profits due to the increased trading activity caused by the tariff scares. The inflation and retail sales reports also helped push stock prices higher along with a University of Michigan report suggesting that consumer sentiment is rebounding.

LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.

U.S. HOUSING MARKET: As of the first quarter of 2025, 92.8% of home mortgages are fixed rate, and over half are locked in a rate below 4%. The average rate across all mortgages is 4.3%. Because current rates are much higher than that, current owners have little incentive to sell, keeping inventories tight. Housing inventory has been rising, but from historically low levels. Supply is still scarce when looking at it in historical perspective. As of May 2025, inventory is up 17.8% from a year prior, but still 14.5% lower than May 2019. With rising home prices, and little turnover, home equity has shot up to where equity now accounts for 72% of total home values. That is one of the highest figures on record dating back to the 1960s. These factors make the current market nothing like 2007-08. While we could continue to see more stabilizing (stagnation?) in home values, and perhaps some decline, a collapse is unlikely.

POPULATION DECLINE: The Organization for Economic Cooperation and Development (OECD) has 38 member countries from the wealthy, developed market economies. According to a recent OECD analysis, by 2060, the number of people who are of working age in these countries will have declined by 8%. For one quarter of these countries, the drop will be more than 30%. In Italy, Japan, Poland, Spain and South Korea, the projected ratio of those who are past working age (65 and older) to those of working age (20-64) will be above 75%, and 52% in the entire OECD. The U.S. and Ireland are set to be exceptions with Portugal, France and Denmark not far behind. According to the OECD, economic slowdown can only be avoided if more women, older people and migrants join the workforce. The report seemed to indicate that having more babies will not solve the problem (or would it?). "Even if [boosting fertility] could succeed, higher birth rates today will materialize into larger working age cohorts no earlier than 20-25 years from now." If my math is correct, 2060 is 35 years from now. I say: "Gen Z and Millennials....get to work!"

ONE PUNDIT'S VIEW ON SMALL CAP STOCKS: "While they’ve pretty steadily underperformed since the beginning of 2023, we’re seeing signs of a bottom relative to large-caps. The prospect of rate cuts from the Fed and a newfound optimism for a cyclical recovery (small-caps have much larger allocations to cyclicals when compared to the tech-heavy S&P 500) are positioning small-caps relatively well here. Since April, the Russell 2000 has been very gently outperforming the S&P 500, but the Russell Microcap Index has done even better. If these conditions can hang on and they don’t get disrupted by another tariff-induced spike in volatility, small-caps could see a bit of an extended run." Michael Gayad, CFA

THE FOLLOWING IS A LINKEDIN ENTRY POSTED BY ARTHUR BROOKS: I liked this post enough to simply cut it and paste it for your enjoyment:

I’ve spent the past few years having the same conversation — with CEOs behind closed doors, with students at Harvard, and on camera with people like Jordan Peterson, Oprah Winfrey, Chris Williamson, and Codie Sanchez.

And the same question keeps coming up: “If I have achieved so much… why do I still feel empty?”

Here’s what I’ve learned from a few of those conversations:

With Jordan Peterson: We talked about how purpose helps us withstand life’s suffering. He asked how I make sense of my path, and I shared the two questions that I ask my Harvard students and myself:

“Why am I alive?”

“What would I give my life for?”

I come back to them often — they’re how I stay oriented when everything else is unclear.

With Chris Williamson: We explored the trap of ambition — how chasing success can make desire grow, not shrink. I introduced what I call the “Want Less Strategy.” It’s a way of measuring happiness that focuses less on accumulating, and more on aligning. Less on what we earn. More on how we use it.

With Oprah Winfrey: Oprah and I share a mission: to lift people up and bring them together through love and happiness. She talks about “happ-ier-ness” - the lived experience of being connected, seen, and useful.

With Codie Sanchez: Codie and I talked about freedom—especially financial freedom. What stood out was her focus on what comes after the money. Freedom for its own sake doesn’t go far. Freedom with direction builds something meaningful. As she put it: “Money is a tool. The question is: what are you building with it?”

The pattern is clear: Success might get your name on the door. But purpose is what lets you walk through it with peace. The people who feel whole are rarely the ones with the loudest résumés. They’re the ones whose lives reflect what they believe.

A WEEKEND IN WESTERN PENNSYLVANIA TO SAY GOODBYE A large contingent of my extended family on my wife's side traveled to Beaver, Pennsylvania this weekend. This was the weekend we could get everyone together to make the trip and hold a memorial service for my father-in-law and mother-in-law. They grew up and lived in this small town almost their entire lives (moving out to our area approximately a decade ago so their two daughters and their families could be near them as they aged). My wife grew up in this little town that doesn't change much over the years. It is a compact, walkable, friendly little town. It is a great place to grow up, so said all the people at the service and subsequent events who were doing a lot of reminiscing. Clete and Shirley Bonner's remains were laid to rest in a plot purchased many years ago by my mother-in-law's parents. I was honored to read the 23rd Psalm at the service.

Have a great week!

Our purpose is to honor God by helping our clients see the objective, find the path, and navigate past the obstacles to a more prosperous future.

Douglas R. MacGray, J.D., C.F.P. ®

President

Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax

(610) 628 4545

dmacgray@stonecropadvisors.com

"The true gospel is a call to self-denial. It is not a call to self-fulfillment." John MacArthur

"There is a time for everything and a season for every activity under the heavens." Ecclesiastes 3:1 (NIV)

SOURCES:

THE FOLLOWING IS A LINKEDIN ENTRY POSTED BY ARTHUR BROOKS: https://www.linkedin.com/in/arthur-c-brooks/

INFLATION RISES A BIT: https://www.bls.gov/news.release/cpi.nr0.htm

POPULATION DECLINE: https://www.wsj.com/economy/global/without-remedy-countries-with-aging-populations-are-set-for-weaker-income-growth-says-oecd-7ad9d2e7?st=3MXFN1&reflink=article_imessage_share

U.S. RETAIL SALES BOUNCE BACK: https://www.census.gov/retail/sales.html

STOCKS RISE TO NEW HIGHS AGAIN: https://www.wsj.com/finance/stocks/strong-earnings-fuel-stock-market-records-this-week-4e6034d5?mod=stocks_news_article_pos5

U.S. HOUSING MARKET: https://www.ftportfolios.com/Commentary/EconomicResearch/2025/7/17/has-the-housing-market-collapse-arrived

ONE PUNDIT'S VIEW ON SMALL CAP STOCKS: https://leadlagreport.substack.com/p/fiscal-risk-is-growing-in-japan?utm_source=post-email-title&publication_id=1562645&post_id=168464794&utm_campaign=email-post-title&isFreemail=true&r=s86er&triedRedirect=true&utm_medium=email

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Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

SDG

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.

*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.

*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.