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Hopefully, everyone had a nice break from the stock market. I traveled a lot this weekend starting on Friday returning home today. Went to Kalahari Water Park for my daughter’s birthday, they told us that they were 100% book for the Christmas weekend. Recession anyone? Lots of trucks on the road too, lots of Tesla Model 3’s.
Not that I’m some genius, but I noticed a lot of Wabash trucks on the road, that’s because they make them. I looked at the transcript from the third quarter call on October 31 for Wabash and they said this about 2019:
It would seem a slowdown to even 2.5% GDP growth would be sufficient for this company to grow. Anyway, thought I’d through that out there. Again, slower yes, depression coming? No. Trucks are a pretty crucial part of the US economy for shipping, and the fact that customer is still buying trucks is a big positive.
The Breakdown
I also pieced together this fantastic chart, which again just confirms to me what the sell-off in the market is about. This is the S&P 500 versus the PHLX Housing Sector HGX, notice the divergence between the two indices around April.Â
Here is a closer view. You see the divergence on April 5, which happens to be the day in between the April ADP and BLS Job Report. Then notice how the HGX breaks support on September 21 a few days before the FOMC meeting, the rest was history.
Then there is the last chart of US 30 Year Treasury, that shows rising interest rates were too much for the Housing sector to handle.
One can see was in the middle of October 2017 that 30-year rates dipped and the housing sector took off. We can see that the housing sector fell hard when 30-year rates began to rise, finally, both stabilized from February through the end of August. But it was on August 23 that rates started to rise again and the housing sector diverged, sending the housing stocks below technical support and likely triggering some sell-signal to the broader market
The housing market is likely the most interest rate sensitive part of the US economy. Don’t believe the theory look below at Home Depot, Lowes, and the construction ETF ITB all peaked and broke lower at the same time.
As did the XLI industrial ETF.
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[youtube-feed feed=7]So why is this all so important? because tomorrow we get 30-year mortgage rates and the Shhiller Home Price Index. Then on Thursday, we get the home price index, and on Friday we get Pending Home Sales.
Lets see what happens. You know what I will be watching very closely.
Mike
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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