11/28/12   New Home Sales Throws Wet Blanket On Housing Recovery

Editor’s Corner

Ron Rowland

Mixed messages are coming out of the housing market.  Existing home sales rose 2.1% in October, much better than the consensus expectation for a 1.1% drop.  Inventories fell 1.4% to 2.1 million units, the lowest figure since December 2002.  The median sales price jumped 11.1% from a year ago to $178,600.  Currently, housing prices are appreciating at rates exceeding the average mortgage rate of 3.6%.  According to Ned Davis Research, this is a rare event that is typically accompanied by rapid increases in housing prices.

Another measure of housing health, the S&P/Case-Shiller national housing price index, came out yesterday indicating a 3.6% price rise for September and a 7% jump for the first nine months of 2012.  Year-over-year gains were noted in 18 of the 20 markets tracked.  The housing market, which has been a significant drag on the economy for the past five years, is now starting to drive the economy again in the view of some economists.

Throwing a wet blanket over the bullish housing news was today’s report that new home sales fell 0.3% in October.  Additionally, the September figures were revised downward by 20,000 annualized units.  Homebuilder stocks, which have been performing quite well recently, tumbled this morning when this news came out.  They recovered those early morning losses but are clearly among the lagging industry groups today.

The Fed’s Beige Book survey of economic activity across its 12 districts was released today, containing data through November 14.  It will be used as part of the Fed’s next policy meeting, scheduled for December 11 and 12.  The report indicated that overall economic activity expanded “at a measured pace” in October and November.  It noted weaker conditions in the New York region due to Hurricane Sandy, and participants from many districts expressed “concern and uncertainty about the federal budget, especially the fiscal cliff”.

Gold prices fell sharply today with analysts blaming the drop on uncertainties in the U.S. and Europe.  The $24 drop to below $1,720 puts gold at about the same price it was two weeks ago as well as 16 months ago. The 10-year Treasury yield closed at 1.62% today, a level it first encountered in late May but has revisited numerous times the past six months.

Investor Heat Map: 11/28/12

Sectors

The number of sectors with positive trends increased from one to six, although most barely nudged their way into the green.  Consumer Discretionary held on to the top spot, getting strength from homebuilders, automakers, and retailers.  Homebuilders came under pressure in early trading today, and retailers will be discussed ad nauseum throughout the holiday shopping season.  Industrials secured its second place position thanks to improvements in the transportation segment.  Consumer Staples and Materials improved their rankings and are now in a tie for third place.  Right behind them, Financials and Health Care are tied for fifth, having slipped a couple of places the past week.  Momentum scores fall sharply for the last four sectors, which remain in negative trends.  Energy is still in seventh as crude oil trades below $87 today.  Technology was the top performer over the past week, allowing it to climb another step out of the basement, a position it held just two weeks ago.  Telecommunications slipped a notch, and Utilities has a lock on last place.

Styles

Our Style categories historically tend to align themselves from Large to Small or viceversa.  Another recurring pattern of the past year has placed “average” and “extreme” at opposite ends of the rankings.  Today we have such an alignment with the three “average” Mid Cap categories sitting at the top.  Our two “extreme” designations, Micro Cap and Mega Cap, are at the bottom of the stack.  The relative locations of the Large Cap and Small Cap categories are often a toss-up with this type of pattern, and today the three Large Cap groups came out stronger.  Compression is evident in the rankings with only 13 points separating the top from the bottom.  This increases the probability of a shakeup in the coming weeks.  For now, Value continues to have an advantage over Growth at all capitalization levels.

Global

China maintains its top ranking for now as Europe mounts a serious challenge.  Positive economic reports out of China continue to bolster the country’s recent strength.  The surge in Europe seems to be tied to bailouts instead of strength.  The European Union approved 37 billion euros for Spain’s banks and apparently broke a logjam that was preventing Greece from getting some of its previously approved bailout funds.  Pacific ex-Japan slipped one notch to third while EAFE held its fourth place position.  Japan has been climbing the ranks recently and accomplished that task again this week by moving up to fifth.  Emerging Markets constitutes the mid-point this week, having moved down a position to make room for Japan above.  Egypt has plunged nearly 14% the past week, but it has only a small weighting and impact on the Emerging Markets benchmark.  The U.K., World Equity, and Canada round out the countries and regions with positive momentum scores.  Only two Global categories have negative readings this week, and one of them happens to be the United States.  Domestic markets improved over the last week but not enough to remove the minus sign.  Latin America is still the laggard Global category with Chile, Brazil, and Peru all contributing to recent weakness.

 

Note:

The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.

 


“They talked some happy talk about doing revenues, but we only have a couple weeks to get something done. So we have to get away from the happy talk and start talking about specific things.”

Senate Majority Leader Harry Reid (11/27/12) on fiscal cliff negotiations


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