Global Breadth Continues to Weaken
2023.06.28 17:04
If you look at some of the latest U.S. economic data, it suggests the economy is in reasonably good shape and even the housing market might not be doing so badly right now. While the supply of is low and that’s helping to prop up real estate values, the construction market is helping to fill in the gaps. New home sales just hit their highest level since early 2022 and are up 20% compared to the same month one year ago. The counter to that argument is that the average sales price for a new home has come down quite a bit, which likely offsets some of that volume gain. I’m not sure this is a sustainable trend, however, with 7% mortgage rates, but it does help explain why homebuilder stocks have done so well this year.
readings also hit their highest level since early 2022. This could be a reflection of a lot of things. It could be that consumers believe their financial situation has improved because of wage growth, lower inflation or a strong labor market. It could be because the stock market, especially tech stocks and the , are up this year. Regardless of the reason, it can be assumed that sentiment has improved considerably after a rough 2022 and, since sentiment fuels everything consumers and investors do, could be the impetus to push stocks higher in the near term. We don’t want to overstate the importance of one data point, but it does suggest that people aren’t really in a bad mood, even if they do believe that recession is coming down the road.
From a market perspective, I don’t think anything has really happened to disprove the notion that market breadth is awful right now and this is still a market driven by a handful of stocks. have had their moments, but nothing indicating a sustained rally. One interesting area of the market to watch is transports. Over the past two months, this sector has beaten the S&P 500 by roughly 6% and supports the idea that some cyclical areas of the market are doing well. I wouldn’t ignore what we’re seeing in Treasuries right now either. Long bonds have begun outperforming T-bills again and that’s generally a sign that there’s some defensive posturing happening beneath the surface. The next couple weeks could be interesting to see if some of these trend shifts we’ve seen recently have some legs.
