EC Weighing The Week Ahead: Is It Too Late To Invest In Housing Stocks?

The economic calendar is modest, and the trading week is holiday-shortened. The most important reports all relate to housing – prices, sales, and plans. With markets viewed as fully or excessively valued by many, there is some renewed interests in finding some attractive remaining sectors. While some political or geopolitical news may well claim the spotlight, even on financial news. That said, this is the closest to a “normal” week for stock analysis that I have seen in a very long time. I expect many to analyze the data and ponder:
 

Is it too late to invest in housing stocks?


Last Week Recap

My last installment of WTWA, either through operator or software error, overwrote the prior week’s post. It therefore carries the wrong date of February 2, 2020, but it is last week’s story. I’ll replace the actual 2/2/20 post soon. In the meantime, you can check out both stories on Seeking Alpha. I apologize for the error and the inconvenience.

Last week I focused on the headshaking in the pundit community. The markets were not following their perception of “fundamentals.” How could stocks rally in the face of so many problems? That was a good guess for the weekly theme. Such stories were frequent and popular, appearing throughout the week.

I also followed up on my prior coronavirus work. If you read the themes in my two prior posts, you will have a solid background in what is happening and how to follow developments.


Coronavirus Update

As noted above, readers should not have been surprised by the various updates on the coronavirus.

China’s Coronavirus Figures Don’t Add Up. ‘This Never Happens With Real Data.’
Most have concluded that the unexpected increases are the result of improved diagnostic techniques, but uncertainty about data still remains.

Dr. Ed Yardeni, monitoring the key indicators, has this conclusion:

The markets must figure that the coronavirus outbreak will be contained soon and go into remission, as did SARS, MERS, and Ebola. If that doesn’t happen, then there will be a vaccine that will make us feel better. It won’t be a miracle cure coming from a drug company. Rather, it will be injections of more liquidity into the global financial markets by the major central banks.

GDP impact from the WSJ survey shows most seeing only a small impact in Q1 GDP in the US but acknowledging downside risks to forecasts.

GDP potential impact from freight disruption. (Menzie Chinn, Econbrowser).

The possible effects on earnings are showing up on conference calls. (John Butters, FactSet). The FactSet study included a search of transcripts of the 364 S&P 500 companies that have conducted conference calls. “Of these 364 companies, 138 (38%) cited the term “coronavirus” during the call. At the sector level, the Industrials (26), Information Technology (26), and Health Care (24) sectors have seen the highest number of companies discussing “coronavirus” on earnings calls of all 11 sectors.” Only 34 included the impact in modified guidance. 47 did not include an impact, often saying that it was too early or too difficult to estimate.


The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Investing.com’s version. If you go to the interactive chart online, you can see the news behind each of the “N” callouts.

The market gained 1.6% for the week. The trading range was only 2.0%. As you can see from the chart, much of the gain came on Monday, with a trading range of only 1% for the remainder of the week. You can monitor volatility, implied volatility, and historical comparisons in my weekly Indicator Snapshot in the Quant Corner below.


Noteworthy

My new daily newspaper, The Arizona Republic, is part of the USA Today network. It is far different from the Trib, and I am learning a lot about my new state. I also see tidbits like this one:

About 44% of U.S. adults admit to hiding a bank account or debt, or to spending more money than their partner would be comfortable with, according to a new study from CreditCards.com, which surveyed 1,378 adults who are married, in a civil partnership or living with their partner.

Privacy and control are the main reasons.

In the interest of privacy and a semblance of control, I will not comment on Mrs. OldProf’s audit process!

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!

New Deal Democrat’s high frequency indicators are an important part of our regular research. This report is fact-based and consistent with the choice of indicators. Consideration of three different time frames helps to clarify economic changes. This week shows an unusual pattern: positive long and short-term indicators, but a neutral “nowcast.” NDD highlights current weakness in production sector indicators (The Baltic Dry Index, rail, steel) but continuing strength in consumer spending.
 

The Good

  • Mortgage applications showed continuing strength, up 1.1% on the week. Refinancing also increased to the highest level in seven years. (Diana Olick, CNBC).

  • Mortgage delinquencies decreased in Q4 2019. No matter what metric you pick, the story is favorable. From Calculated Risk, quoting MBA’s Marina Walsh, the Vice President of Industry analysis:

    Added Walsh, “Signs of healthy conditions were seen in other parts of the survey. The foreclosure inventory rate – the percentage of loans in the foreclosure process – was at its lowest level since 1985. Furthermore, states with lengthier judicial processes continued to chip away at their foreclosure inventories, and it also appears that with home-price appreciation and equity accumulation, distressed borrowers have had alternative options to foreclosure.”

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