Afford Anything - First Friday: Fed Rate Hike Coming? Jobs & Housing News

Episode Date: June 5, 2026

#721: The US economy showed robust job growth in May, adding 172,000 new jobs, exceeding expectations. This suggests a broadening of economic recovery beyond essential services. Treasury yields have climbed significantly, reflecting investor concerns about inflation. Inflation remains a significant concern, driven largely by surging energy costs. And there's good news emerging in prescription drug prices. We're going to discuss all of this and more in the June 2026 First Friday episode. Timestamps: Note: Timestamps will vary on individual listening devices based on dynamic advertising segments. The provided timestamps are approximate and may be several minutes off due to changing ad lengths. (0:00) May jobs surge (04:31) Fed rate hike outlook (06:08) Bond yields and stocks (11:57) Home prices keep falling (16:15) Austin housing correction (17:18) Inflation and energy costs (21:21) Gas prices hit budgets (23:05) Consumer sentiment weakens (28:11) JPMorgan market outlook (29:14) Mag Seven loses dominance (33:04) Prescription drug prices drop (39:24) SpaceX IPO plans and demand Resources: JP Morgan article: https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets Free download: Asset Location Made Simple https://affordanything.com/assetlocation Learn more about your ad choices. Visit podcastchoices.com/adchoices

Hiring surged in the month of May. The U.S. added 172,000 new jobs. Far exceeding expectations. We're going to talk more about that in today's episode. We have a new Fed chair, and a lot of people are betting that there's going to be a Fed rate hike. Bond yields are super high. The stock market is going gangbusters. There's great news about prescription drug prices. Many of those are coming down. There's bad news at the gas pump, but you already know that.

We're going to discuss all of this and more in today's first Friday episode. Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. This show covers five pillars, financial psychology, increasing your income, investing, real estate and entrepreneurship. Acronym, Fire with two eyes, double I fire. Normally on our Friday episodes, we interview guests. There's an exception, and that's the first Friday of every month, when we do a macroeconomic update. We take a look at what's happening around us in the economy. So welcome to the June 26, 1st Friday economic update.

We'll start as we always do with the jobs report. The U.S. added 172,000 new jobs last month. Unemployment held steady at 4.3%. The labor participation rate, which is the number of people who are working or looking for work, also held steady at 61.8%. This is new. the leisure and hospitality sector led hiring. That makes this job's report unusual.

Often we see the biggest gains come from health care. Health care did well, as it always does. We often, most months, we see gains in local government jobs, in social assistance jobs. Those also posted gains, as they typically do. This last month's report was notable for how many of those gains came from leisure and hospitality, a discretionary sector. It added 70,000 jobs last month.

That's the most gains it's posted in three years. That is a strong economic indicator because what we've seen is that so far most of the job growth has come from what broadly we'll call the floor, the necessities, health care, manufacturing, construction, the infrastructure that is critical to keep a society running. We have a very strong base, and that's been what has kept us at a low unemployment rate for so long. This particular jobs report was notable because it was the first time that we saw a major gain, first time in a long time, that we've seen a major gain in a very discretionary sector. That's a positive indicator, but it's only one data point out of many. Take it for what it is. Don't read too much into it, but do take note of it.

I should also note that in this latest jobs report, the manufacturing sector and non-residential construction also put, which commercial construction posted big games. A lot of that might be linked to the AI boom data centers. Again, infrastructure associated with AI. The ADP report, which tracks private sector employment, they also put out a jobs report for the month of May. The reason that we look at this is because when you've got two different data sets, it rounds out the picture a little bit. What's cool about the ADP report is that in May, they got a pretty similar result. ADP showed job growth of 122,000 new jobs in the month of May. Again, that's private sector employment only.

The ADP report does not include any public sector. And they also found that hiring in May was much more broad-based than they've seen in several years. So the ADP report saw jobs coming out of trade transportation and utilities, financial services, professional and business services. That's a new one because that one has been actually declining for previous months. They saw job growth in education, health services, also leisure and hospitality. They saw very, very broad-based across a huge variety of sectors. The only one where they saw a decline was natural resources and mining and information, IT jobs. ADP also saw broad-based hiring across employers of all sizes, which is notable because there

have been previous reports where they mostly saw the hiring concentrated into like by large employers. In May's report, they saw hiring across small, mid-size and large. Given the strength of the job market and given inflation fears, analysts are now betting on a Fed rate hike, which is, a totally different conversation than the one that we've been having for several months where everybody was watching for the next rate cut. If this continues, if we've finally broken out of that lackluster hiring, and if there continues to be evidence that the Fed does not have to worry about

the labor market, they're likely going to raise rates. And so because of that, treasury yields are climbing. Analysts say there's now roughly a 60% chance that by October, there may be a quarter point rate increase. The next time that the Fed meets is going to be June 16 and 17, and that'll be the first meeting under the new chairman, Kevin Warsh. So people are going to be watching that really closely to see what Kevin Warsh is going to say at that first meeting. Is he going to recommend holding? Is he what's he going to say? It's first meeting with the new leader. So mark your calendars for June 16 and 17 because we're going to get a clear signal based on his remarks at that meeting. as to the direction that he's going to be leading the Fed in,

there's basically no chance that the Fed would cut rates. I mean, with inflation consistently as high as it is right now, and particularly with everything in the strait of Hormuz, there's no chance they're going to cut. But his remarks will be notable as an indicator of how much pressure are they feeling around the possibility of raising rates, how many rate hikes, how quickly, or will they hold. That's the more likely set of outcomes.

The yield on the 30-year treasury is the highest that it's been in nearly two decades. A few weeks ago, it climbed as high as 5.2%. Right now, as of this recording, it's down to around 4.9%. But overall, the yield on a 30-year is near its highest point since 2007. What that means is that investors are really worried about inflation. Basically, the higher the yield is, the more investors are worried about inflation. And I should note, because especially about two weeks ago when it hit 5.2%, that was huge news in the financial world. And I should note that it isn't just bond yields in the U.S. that are sky high.

The bond markets across Europe and across Japan are also seeing similar things play out. So the yield on a 30 year in the UK is around 6%, or it was as of about two weeks ago, and Germany's rate is trading near its 2011 high. The other thing that's notable is oftentimes when bond yields get really high, that can sometimes spark a sell-off in equities, a dip in the stock market. Because if you can make a higher return by just holding government bonds, then why would you take the risk of being in the market? But what we're seeing this time around is that that's not happening.

This past week was the first week that the S&P 500 dipped just a smidge by 1%. Prior to this week, it had achieved a nine-week winning streak. That's very rare. Nine consecutive weeks of wins, of gains, is extremely rare. So this week broke that trend. So we did not get a 10-week winning streak. But in spite of that, the fact that we're coming off a nine-week winning streak is indicative of the fact that stocks are doing really well right now, in spite of all of the worries in the bond market. So the thing about the bond market and treasuries is that's what impacts mortgage rates.

When we've got really high yields in the bond market, when the 30-year and specifically it's the 10-year treasury that influences mortgage rates, But when those yields are high, mortgage rates are high. So we are going to take a moment to hear from the sponsors who make the show possible. And when we come back, we're going to take a look at what's happening in the housing markets. That's up next. Staples Preferred Business Membership, built for busy business owners, because you've got bigger things to think about. With Staples Preferred, get free delivery.

No minimums. Staples Preferred unlocks. to 3% back. Plus 10% savings on print and exclusive wireless offers. One less thing on your plate. Actually, a lot less. Visit staples.ca slash preferred. That was easy. Welcome back. Home prices are going down. According to a report released June 3rd by the National Association of Realtors, listed their sharpest drop in nine years. The national median listing price has been falling for the last seven consecutive months and it dropped again in May by an additional 2.4% year over year. This is the sharpest annual decline in data from Realtor.com that goes back to 2017, according

to their housing market trends report. May also saw that the median price per square foot, which is the value of a home relative to its size, that declined by 2.5% year over year. And this seems to be a nationwide trend. They saw this in 35 out of the 50 largest markets. As I've been saying for many months now, tough time to be a seller, great time to be a buyer. One thing that we also saw in May, the number of homes under contract rose for a sixth consecutive month. So in May, the number of homes under contract increased 4.3% year over year. What that indicates is that the decline in home prices is working.

Sellers are pricing to sell and buyers are increasingly entering the market and going under contract on properties in response. More sellers are now listing. New listings have climbed by 2.1% compared to a year ago. This is the highest level of new listings for May since 2022. Historically, we've seen a lot of sellers who are reluctant to sell because they've got the golden handcuff scenario. They've got a mortgage rate that's a three-handle. somewhere in the 3% zone. They don't want to get rid of that

in order to trade it for a 6% mortgage rate. So they hang on to their homes. We're seeing more and more of those sellers hit the stage where life circumstances have changed enough that they've got to sell. So increased inventory, slightly increased inventory, increased buyers under contract.

These are all indications that people have normalized to this new set of conditions. The set of conditions that felt shocking. If you think about how quickly things changed in 2021, going into 2022, right? How rapidly we went from 2.8, 2.9% mortgage rates up to 6.5% mortgage rates. It was a very steep, very quick climb, and it took people a bit to get used to it.

But there are at least indications that now people are normalizing to this is the new normal, this is the new reality, this is how it is. And so rather than holding back and saying, well, I'm going to wait for interest rates to drop, buyers are recognizing interest rates are not going to drop. This six handle is the new normal and will be the new normal for a while. So let's bake that into all of our assumptions and move on with that assumption in mind. And similarly, sellers who saw how quickly home prices climbed in 2021, it went up 17% year over year. a lot of sellers when they saw that kind of growth, they were reluctant to the idea that prices

might stagnate or soften. And so across 2023 and 2024, many buyers would not respond to increase days on market by lowering their prices. They were holding out for higher rates. And now what we're seeing is sellers are increasingly pricing to sell. And if a property is priced right, buyers are increasingly receptive to buying. we're going from a housing market that for the last several years was characterized by a lack of volume, lack of transactions under activity. We're shifting from that to a housing market that has, relatively speaking, more activity than it did a year or two ago. Still not a high volume of activity, but an increasing volume of activity.

I should note, by the way, anytime we talk about real estate that when we discuss real estate as a broad aggregate, we're talking about national stats, but all real estate is local. And so I should note there are a couple of specific locations that have seen some steep declines. So Austin stands out. Home prices declined 9.5%. That's based on median list price. If you look at median price per square foot, Austin saw a decline of 8.3%. And Austin also saw days on market increasing by 10, additional days. So in Austin, homes are between 8 to 9% cheaper than they used to be, and they still take longer to sell. So Austin's going through a big price correction right now, largely because housing supply outran the demand. And so for anybody who's concerned about affordability, I think

Austin is a prime example of what happens when supply outpaces demand. Home prices drop. We're also seeing declines in Memphis. Memphis has a year-over-year decline of 13% and Buffalo, New York, year-over-year decline of 11.6%. So we're seeing specific metro areas where home prices have dropped significantly. Let's take a look at inflation data. As of April, 26, the most recent month for which we have official reports, core CPI rose to 2.8%. That is inflation. minus food and fuel. Those two get stripped out of core CPI because the cost of food and fuel are subject to short-term volatility that might not be indicative of overall inflation. So core CPI rose 2.8%. Meanwhile, there's a different measure.

It's called Headline CPI. Headline CPI includes food and fuel. So when you add those two in, inflation rose 3.8%. So in other words, the addition. of food and fuel, when you're looking at inflation data, considering food and fuel, that increases the inflation measure by one percentage point, which is kind of a somewhat technical way of saying part of the reason inflation is so high is because of surging energy costs. So the energy index jumped 17.9% over the 12 months ending in April. That includes a 28

point four percent increase in gas prices. And that is the biggest driver of inflation. Food rose 3.2% year over year. The most severe spikes were tomatoes, which are up 39.7% annually. Instant coffee is 22.8%. And beef roasts are at 17.8%. Airfare, which is very influenced by the cost of fuel. airfare rose 20.7% over the last 12 months. So big spikes in fuel are leading inflation. There's a different measure of inflation. It's called the PCE, the personal consumption expenditures index. Those numbers headline 3.8%, core 3.3%. So if you're measuring inflation by PCE rather than CPI, it shows a smaller spread in between headline versus core. Remember, the CPI spread between headline and core was one percentage point. The PCE spread between headline and core is

one half of one percentage point, regardless whichever measure you use, the fact that the spread between core inflation versus headline inflation is so large tells you the obvious. it's fuel prices that are driving the surge. And the thing about food and fuel, part of the reason that they are, again, at the risk of stating the obvious, part of the reason that they are particularly bad for consumer sentiment,

and we'll talk more about that in just a moment, is because they are necessary. So if you dig into inflation data, there's a category men's shirts and sweaters. That is up 2% from last year. But if you don't like that, you can simply refrain from buying as many shirts and sweaters. The category of smartphones is actually down 1% from last year. Right.

But when we're talking shirts, sweaters, smartphones, they're all discretionary. Groceries and gas are not. And then fuel in particular drives up the price of everything. Shipping. There are fuel surcharges that are getting added by airlines, by Amazon, by UPS. so prices everywhere rise. And given that global supplies have been backed up for so many weeks now, there is a reasonable chance, even if this trade of Hormuz reopened today,

which it won't, but it may reopen in July. But even if it were to reopen today, hypothetically, there is a sufficient enough global supply backup that gas prices would likely remain elevated, through most of the rest of the year. Now, in terms of what this does to your actual budget, for gasoline directly, it's probably a smaller amount than you think. So if the delta between what gas prices were in January versus what they are now, if that delta is an extra $2 per gallon, well, according to JD Power and Associates, the average driver drives about 40 to 50, uses about 40 to 50 gallons per month. So if we're talking about a delta of two bucks a gallon,

times 40 to 50 gallons a month, we're talking about an extra $80 to $100 per month as compared to what you were paying back in January. And remember January was when fuel prices were at their lowest, gas prices were at their lowest since the pandemic. Even though the increase at the pump feels bad because when you're standing at the gas pump, you have nothing else to do with your time other than just watch the price go high. So it's very visceral. You really feel it like it's a very, very salient thing.

The actual impact on your budget, that difference is probably if you are like the average driver between $80 to $100 per month. But the reverberation on the cost of buying a plane ticket, the cost of getting something on Amazon, the cost of getting something delivered through UPS, the cost of everything outside of the pump, it all weighs together. And the response to high inflation is that treasury yields rise, which means mortgage rates rise, which itself creates additional inflationary pressure because when mortgage rates rise, obviously homes become more expensive. So the response to inflation in terms of the housing market, the response to inflation actually creates more inflation. And that has a big impact on consumer sentiment, which fell for the third straight month. Sentiment is now at its lowest point since the University of Michigan began tracking it. Consumers stated that their first order concern was cost of living. According to the University of Michigan, 57% of consumers spontaneously mentioned that high prices were eroding their personal finances.

That's up from 50% the previous month. And the biggest drops in sentiment were among lower income consumers and people without college degrees. Those two cohorts posted particularly strong sentiment declines. Those groups are also much more sensitive to increases in the cost of gas and groceries. So in its study, the University of Michigan tracks a handful of core metrics in a few different categories, and they're seeing declines everywhere. So when they ask consumers about current economic conditions, down. When they ask consumers about their expectations for the future, down. When they ask consumers about their personal finances, down.

When they ask consumers about what they expect short-term inflation to be, it's more pessimistic. When they ask people what they expect long-term inflation to be, also more pessimistic. Consumer sentiment is now below the threshold that was recorded at the beginning of the last six U.S. recessions, which means people are more pessimistic than they were at the beginning of the 2008 recession. Well, on that happy note, we're going to take one last break to hear from the sponsors who make the show possible. When we return, on May 29th, JPMorgan released their guide to the markets packed with a ton of insight around what's happening in the stock market right now. We're going to talk about that because there are some good news there. That's actually some

great news in there. We're going to talk about what's happening in the stock market right after this. Welcome back. The following is. Insights all come from the J.P. Morgan Q2 Guide to the Markets. We will link to that in the show notes. But here are the major takeaways. Number one, stocks are cheaper than they were as measured by forward PE, which means you are paying less per dollar of the expected earnings than you were just a few months ago. So even though stock prices are up, the forward PE is now down, which is to say better valuations. Number two, there is less concentration. You remember about a year ago, everyone was talking about the Mag 7, seven big companies, big tech companies, Apple, Nvidia, Tesla, etc. Have you noticed how you don't hear people talk about the Mag 7 anymore? That is in part because the concentration of the top 10 companies in the S&P 500, that concentration has come down. So without a doubt, the top 10 stocks are still a huge percentage of the overall market, not minimizing that at all. But,

it has come down some relative to how concentrated it used to be. And the MAG7 itself, those seven specific stocks are actually underperforming. So those seven stocks are underperforming the overall S&P 500, which goes to show don't chase performance. I know back in the Mag 7 heyday of 2025, some people were talking about wanting to just index the MAG 7 alone or wanting to just buy shares of those seven individual stocks because they were on such a tear, and now they're underperforming the overall S&P 500. So it underscores the importance of sticking with index funds, sticking with broad market index funds, because chasing individual stocks is incredibly high risk.

You are statistically speaking more likely to be wrong than right. In our interview recently with Claire Flynn Levy, she pointed out. that even the best asset managers are wrong 51% of the time. And often if you chase performance, you're too late because the best performing stocks are always in flux. What was the best performing does not remain that way and something else becomes the new best performing. Don't try to find the needle in the haystack. Just buy the whole haystack. That's the beauty of index funds. In 2005, some of the biggest companies were Exxon. Microsoft, Citigroup, Walmart, Pfizer, Bank of America, Johnson and Johnson.

Those were the big players in 2005. 10 years later, 2015, some of them were still on that list, Microsoft, Johnson, and Johnson. Those stayed steady, Exxon also. But, you know, Wells Fargo was on that, joined that list. Berkshire Hathaway was on that list. Those became some of the biggest companies of 2015. And now you move to 2025. Microsoft is still there. It's had amazing staying power. But, you know, now Tesla, Meta, Amazon,

invidia, these are now top 10 S&P 500 companies by market cap. So the big players are always changing. And whether or not you even want the big players is always changing because there have been years where small caps have torn ahead and then there have been years where small caps have lagged behind. So it's cool when these guides come out and they look at, What's been happening in the markets recently, we get a short-term quarterly look and it underscores all of the long-term lessons. Those timeless classic evergreen long-term lessons, like the short-term data reinforces what we know and what we have known, which is broad market diversification, indexing, and don't assume the future will be anything like the present. One last interesting stat from the Guide to the Markets is the amount of time that it takes to recover from a drawdown according to this study by J.P. Morgan, on average, it takes stocks about two years to recover from a 20% drawdown. And so that underscores some of our conversations that we've had on this podcast about the way that you allocate assets according to your timeline, your timeline to withdrawal.

So if there's money that you want to be spending in the next one to two years, that's the case for moving that into cash. That's the case for protecting against that sequence of returns risk. So again, on average, it takes stocks about two years to recover from a 20% drawdown according to this J.P. Morgan research. Some good news on prescription drug prices. The prices of many drugs are coming down. The issue that the U.S. has had is that we, until recently, have not had. what's called most favored nation pricing. And so what that means is that the same drugs made in the same factories at the same dosages, historically were costing Americans a lot more, up to 10 times

more than in any other country. For example, Gonal F, which is a drug used in IVF, used to cost $1450, $1,450 per pen in the U.S. In Germany, it costs $310. in Canada it costs $355. That isn't 10 times more. That specific example is only triple, more than triple, actually. Why is it triple here within what it costs in Canada? Now, with the new most favored nation pricing, Gonal F is now $252 in the U.S.,

which is an 83% discount from what it used to cost. Many of the GLP1 medications, OZempic, Wagovi, Zetbound, now have come down due to this. this most favored nation pricing. OZempec has come down from $1,028 down to $199 at its lowest point. Wagovi, $1,349 for both the pen and the pill. And now it is down to $149 for the pill and $199 for the pen.

So that one is literally a 10x difference. The Zetbound used to be $1,087. Now the lowest dosage is $299. I should state the prices that I'm talking about right now are cash prices, which can be obtained directly through a manufacturer's website or at certain participating pharmacies using coupon cards. These are prices for cash payers who are buying outside of insurance. If you're buying through insurance, there's going to be enormous variation. Check with your insurance company. Compare the cash price discount versus the insurance rate.

Sometimes it might surprise you. There are cases in which it's cheaper to just pay in cash. I do also, when we talk about prescription drugs, I want to make a distinction between brand medications, which often can be incredibly expensive, versus generic drugs. The most favorite nation pricing, that applies to high-cost brand medications,

Wago, Zempec, Gonal F, various types of insulin, a 300-unit pen of insulin, glargine, I hope I'm pronouncing that right, G-L-A-R-G-I-N-E. Sorry if I'm butchering the pronunciation. The 300-unit pen of insulin glargine or glargine, however you say that, used to be $126 for a 300-unit pen. Now it is down to $35.

So those are all examples of brand medications that have been discounted through most favored nation pricing. Now, that is distinct from prices on generic drugs, which, you know, you know, you You can find by looking at private pharmacy discount aggregators, many of those have come down significantly. So these would include things like blood pressure medications, antibiotics, statins, many of these. There are hundreds of new generic drugs that are now reflecting cash pricing that is cheap when purchased through a participating pharmacy. So this goes back to what I was saying earlier. Because of these pricing games that happen behind the scenes, there are certain generic

drugs that carry very high out-of-pocket costs if you use your insurance to buy it. So this is where the importance of comparing the insurance cost versus the cash cost comes in. And you can find this information online by looking at pricing aggregators. Now about 90% of prescriptions that are filled in the U.S. are generic. Bottom line, what we are seeing right now are bigger discounts for cash-paying customers for both generic drugs as well as high-priced brand-name drugs. So in an otherwise inflationary environment, that is the one piece of good news.

Your prescription drug prices may be coming down or may have come down recently. SpaceX is planning an IPO, and it has already received more orders than there are shares available. So they are planning a $75 billion IPO, The company, this is all according to Bloomberg, the company is offering around 555.6 million shares at $135 each. That values the company at $1.8 trillion.

The deal is expected to price on June 11th and begin trading the following day. This would be the biggest ever IPO. NASDAQ recently changed its rule so that SpaceX can join the NASDAQ 100 index in just 15 days. that's down from what they used to have, which was a three-month waiting minimum, the Russell Index, the FTSC Russell, also shortened its wait time down to five trading days. So you can get exposure to SpaceX through indexes

after a waiting period of between five days to 15 days, depending on which index you choose. Those are some of the major economic stories that we are watching right now. Thank you for being. part of the Afford Anything community. I hope you enjoyed today's episode. This is a little in the weeds, but if you've made it this far, you probably are somebody who's a little more sophisticated, maybe a little bit more in the weeds. We have a free four-page cheat sheet, a little handout,

on asset location. So asset location is basically the art and science of figuring out which investments belong in which accounts. So how do you maximize the tax efficiency of putting certain types of investments into certain types of accounts based on if something is tax deferred versus tax exempt versus taxable. If you would like to download that cheat sheet, it's totally free, go to afford anything.com slash asset location. Again, afford anything.com slash asset location. Thank you so much for being part of the afford anything community. If you want to chat about today's episode with other members of the community, you can do so by going to, you guessed it, afford anything.com slash community.

If you enjoyed today's episode, please open your favorite podcast playing app, hit the follow button, and while you're there, you can leave us up to a five-star review. I so appreciate you being part of this community. I'm Paula Pant. This is the Afford Anything podcast, and I'll meet you in the next episode.