Existing Home Sales decline, yet Housing Stocks (& Disruptive Tech) Being Bought – Try the Corn Bread Casserole

Kenny Polcari Uncategorized Leave a Comment

Free illustrations of Financial crisis

Things you need to know ~

  • More FED Head Commentary – sends markets on a roller coaster ride
  • Existing home sales – plunge, but are housing stocks a ‘buy’?
  • Investors snooping around the beaten up names – looking for value
  • Oil – breaks $80/barrel – what will the Saudi’s do now?
  • It is a holiday shortened week – moves could be exaggerated.
  • Try the Corn Bread Casserole

Stocks rose on Friday – capping off a very chaotic week…..as the data, the commentary and the action continues to cause investors/traders and algorithms to question – what’s next?  The Dow added 200 pts, the S&P up 18, the Nasdaq gained 1 pt., the Russell ahead by 10 and the Transports added 95 pts.

Of the 11 broad sectors in the S&P – all were higher with the exception of Communications – XLC -0.3% and Energy – XLE -0.8% – with Utilities being the best performer +2.1%.  Healthcare XLV and Real Estate – XLRE both  + 1.2%, Consumer Staples – XLP +1%, with the remaining sectors up just a bit less than 1%.

Treasury yields were higher – and that suggests that rates are going to continue to move up even though so many continue to push the FED pause story or better yet – the pivot story.  The 2 yr. yielding 4.53% (up from 4.3%), the 5 yr. 4.01% (up from 3.9%) and the 10 yr. yielding 3.8% (up from 3.6%).

Thursday we got St Louis Fed President – Jimmy Bullard tell us that the terminal rate (in his opinion) could be anywhere between 5% – 7% – you see what he did?  He now put a higher terminal rate into the public square – he didn’t’ say it WAS going there, but he did say that it COULD go there – and that is just enough to make it clear that rates have a ways to go…..and that caused some initial anxiousness until of course he qualified it by saying  that the current outlook calls for a terminal rate of 5% – 5.25%.  (Something that the mkt already expected).  And not to be outdone – Minneapolis’s Neely Kashkari said that rate hikes should continue until there is certainty that inflation has stopped climbing – and as of now – that is not happening.

Then on Friday – Boston FED President Susan Collins expressed confidence that the FED could ‘tame inflation without doing too much damage’ and so the mixed commentary continues as we move into the end of the year.  And it appears that investors/algo’s want to be on the side of Collins and not Bullard and Kashkari….the slowdown in some of the macro data points and the calming tone of Collins caused the algo’s to rip stocks higher – and that took the S&P up 6% for the week.

Now look – last week we got a bunch of retail earnings reports –  and most were mixed at best but not mixed enough to suggest that consumers are tiring….and that will force the FED to continue to push higher….and while all of this is known – investors are finding opportunities (and value) across many of the beaten down sectors…..in fact one of those is housing….and you ask – Housing?  How can that be? Rates are up and only going higher – why would housing be a beneficiary right now?  And the answer is that stocks are not trading on current news – they trade on future news….remember – stocks are a discounting mechanism and the recent action in housing stocks suggests that some investors are betting on a turnaround….and that turnaround will cause the FED to slow the pace of increases and then pause and then pivot….to which I would say – OK – but define the timeline…..because that is the question…

XHB – Housing stocks ETF is up 15% since the October low – recognizing that it is still down 31% ytd…See, it was down more than 45% going into October….and so, the destruction in value is now causing some to dip their toes in the water…asking themselves – can it get any worse?  Well, or course it can get worse, and it can get better and that is the conundrum.  Home prices are expected to continue to decline next year, as rates continue to climb, New home sales, Existing home sales, housing starts and mortgage apps are all in decline….and this downbeat outlook has made housing stocks one of the worst performers this year – TOL -39%, KBH – 30%, LGIH – 38%, LEN – 23%. & DHI – 20% – but some investors believe that the worst is over and that there is long term opportunity in this sector – which is true (at some point)– you just have to decide how long you are willing to wait.  The bet in the end is that the FED will stop raising rates and that will be good for housing stocks.

You also see investors once again ‘dipping their toes’ into disruptive tech – think Cathie Wood’s ARKK fund.  That ETF was down more than 70% ytd, but has rallied by 15% on the idea that the FED is going to choke….nearly every name in that ETF is down more than 50% – so if you believe the story of a FED pause – then you can expect that money will be drawn to sectors that have gotten slaughtered this year…and some of the other areas that are seeing new buy interest are Cybersecurity, Artificial Intelligence, Semiconductors and Communications all sectors that have been clobbered this year.

And if you don’t believe that the FED is going to pivot – then you put your money in the old tried and true sectors that are large mega cap multinational names that off stability and good divvy’s  and those sectors include – Energy, Consumer Staples, Utilities, Healthcare and Financials.

Oil came under tremendous pressure last week as the China demand destruction story took new flight, supply issues were put to bed and a global recession is knocking on our door. ……WTI is now down 15%  since the November high of $91….Much of the supply concern has proven to be a non-issue (Russia to sell their oil to India and then the Europeans will buy the new ‘Indian oil’ to help solve their issues) all while the Saudi’s announced their production cuts…but I suspect that if oil continues to decline – the Saudi’s (OPEC) will announce additional supply cuts to try and prop up the price.  This morning – Oil is trading down 40 cts at $79.80/barrel – getting close to Joey’s buy range of $72.

The dollar index is up 90 cts at $107.81 – this after testing and bouncing off of trendline support on November 15th….The dollar remains in $105.50/$109.20 trading range.

Gold has backed off a bit – the stronger dollar and the idea that inflationary pressures are receding causing that pull back.  Gold now remains in the $1740/$1830 range
Eco data today includes the Chicago FED survey – expectation are for a slight decline….nothing to write home about.  Later in the week – look for Durable Goods, Richmond FED survey, Cap Goods Ordered and Cap Goods Shipped.  Wednesday also brings us S&P Manufacturing and Services PMI’s.  Manufacturing is expected to be right on the neutral line – 50 while Services is expected to remain in contractionary territory at 48.

Markets are closed on Thursday and only trade ½ day on Friday. I suspect that we will see a rally into the end of the week – as we usually do…..

This morning though – US futures are down.  Dow -80, S&P’s -20, Nasdaq -85, and the Russell -9.  Look for more retail earnings….JWN, DLR, and DKS.

Now I must say – I am getting bombarded with flyers and internet offerings  announcing all kinds of ‘sales’ – clothing, kitchen stuff, TV’s and other electronics,  furniture – both indoor and outdoor, etc.  The funny part is the sales prices are marked down 30% – but what they fail to disclose is that the prices are up more than 60% – so is it really a sale?  😉

European Stocks are down….anywhere between 0.5% and 1%.  German Wholesale Inflation (PPI) is well below the expectations…coming it at -4.2% vs. the consensus estimate of +0.9%.  Leaving annual price increases up 34.5%  vs. the expected 41.5% and that should be being viewed as a positive…but at the moment – no one seems to care.

The S&P closed at 3965 – up 18 pts – leaving us solidly in the 3793/4073 trading range. This is a holiday shortened week – moves can be exaggerated as so many are away from their desks.  PM’s have placed buy orders below current levels while they have also placed sell orders above current levels to take advantage of any outsized swing that results this week while they are away.

Be careful to not to make any dramatic moves during times of lower participation – but if you have money to put to work – pick levels that you are comfortable at – Just like the big asset management firms do – and place your orders. If the market trades down to where you want to buy them, then guess what – you’ll buy them. Conversely – do the same on the sell side if you are looking to ‘trim’ a bit at higher prices. Nothing guarantees it will happen, but if it does, while your away, then you won’t have missed it.  Capisce?

Sit tight, stick to the plan – focus on the end game….

Take good care,

Chief Market Strategist
kpolcari@slatestone.com

Corn Bread Casserole

So, I got this recipe from a former co-worker and Morning Thoughts reader.  It is a Thanksgiving family favorite in his house and he wanted to share it with me to share with you.  (Grazie Remo)

It is simple and I made it on Sunday morning to try it and by Sunday night it was gone.  The whole thing will cost you about $12 to make.  I used gluten free (GF) corn bread mix and it was delicious.

For this you need one box of cornbread mix (or 2 boxes of Jiffy corn bread), 2- 14 oz cans of creamed corn, 10 oz of sour cream, 1 stick of melted butter and 3 beaten eggs.

Preheat your oven to 350 degrees.

In a large bowl mix all of the ingredients.  Now put it into a 9×12 greased baking pan.  Bake for 50 – 60 minutes or until the top begins to take on a golden brown color.  Remove and enjoy when it’s hot – right out of the oven!