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HOUSE COOLING PARTY: HOUSING STARTS, BUILDING PERMITS, MORTGAGE DEMAND (1046 EDT/1446 GMT)
Data released on Wednesday confirmed that the housing sector's COVID-era block party is over, and market participants survey the detritus left in the wake of its rousing success.
Groundbreaking on new U.S. homes inched down 0.2% last month to 1.724 million units at a seasonally adjusted annualized rate (SAAR), according to the Commerce Department.
The number came in 2.3% below the 1.765 million units SAAR analysts expected, owing to a sharp downward revision of the March print.
Building permits, considered an advance housing indicator, slid by 3.2% to an above-consensus 1.819 million units SAAR from the prior month's upwardly revised number.
The declines echo the plunge in homebuilder sentiment seen in the NAHB Housing Market index released on Tuesday, which slid to its lowest level since the brief COVID shock in the spring of 2020.
As the dust settles from the pandemic-driven suburban stampede, spiking home price growth, materials scarcity and rising mortgage rates are yanking the dream of home ownership from under the feet of many potential buyers, particularly at the lower end of the market.
"Elevated input costs and shortages remain headwinds for builders," writes Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "Rising mortgage rates that crimp demand will also likely be a constraint for building activity going forward."
Farooqi provides a tidy segue to our next bit: data from the Mortgage Bankers Association (MBA) showed demand for home loans plunged 11% last week.
The average 30-year fixed contract rate, tracking benchmark Treasury yields, took a breather from its uphill climb by shedding 4 basis points to 5.49%.
Still, that amounts to a 2.6-percentage-point rise since just the first of the year, a trend which has proved to be a mortgage demand buzzkill.
Applications for loans to purchase homes and refinance existing mortgages tumbled by 11.9% and 9.5%, respectively.
"Prospective homebuyers have been put off by higher rates and worsening affordability conditions," says Joel Kan, associate vice president of economic and industry forecasting at MBA. "Furthermore, general uncertainty about the near-term economic outlook, as well as recent stock market volatility, may be causing some households to delay their home search."
Overall, mortgage demand is down 55.9% from the same week a year ago.
But while building permits and mortgage applications are among the more forward-looking housing market data, offering clues as to where the sector might be a month or two down the road, the equity investors set their sights further down the road.
While the Philadelphia SE Housing index and the S&P 1500 Home Building index had the broader market eating their dust in the first year or so of the pandemic, over the last 12 months, they have well underperformed the S&P 500:
Still, it must be said, when rebased to the nadir of the COVID crash, the HGX has still outdone the SPX.
Here's a dashboard of various housing market indicators, which together form a mosaic depicting a sector on the wane (click to enlarge):
Wall Street is in the throes of another risk-off session, with all three major U.S. stock indexes deep in red territory in morning trading.
Consumer staples and discretionary stocks , as well as economically sensitive transports, are among the morning's biggest losers.
(Stephen Culp)
A TARGET ON THE MARKET'S BACK (0957 EDT/1357 GMT)
Major U.S. stock indexes are lower early on Wednesday as a rally in growth shares fades and downbeat results from retailer Target Corp added to worries over surging inflation.
Indeed, Target's Q1 profit halved and the company warned of a bigger hit to its margins due to higher fuel and freight costs. With this, its shares are losing around a quarter of their value, which puts them on pace for their biggest one-day slide since the stock market crash of 1987's Black Monday.
Meanwhile, all major S&P 500 sectors are red with consumer discretionary taking the biggest hit. The SPDR S&P Retail ETF is down more than 5%, and on pace for its worst day since February 2, 2021.
Transports are another especially weak group. The DJT is falling more than 3%.
That said, it's not a universally red day as clean energy stocks are showing some green. The WilderHill Clean Energy ETF is gaining more than 1%.
Here is an early trade snapshot:
(Terence Gabriel)
SHORT TECH, LONG ENERGY (0932 EDT/1332 GMT)
If there is one trade that's working well this year, it's Short Tech and Long Energy as markets position for rising rates piling even more pressure on highly valued stocks.
And price action today in Europe is reflecting that quite nicely. The STOXX Oil and Gas index is leading gainers and surging to a new three-year high, up 1.8%, while at the other end of the spectrum is the STOXX Tech, down 1.8%.
More broadly the MSCI World Energy is now up 80% from the record low levels it was hovering at last year relative to the MSCI World Technology, boosted by the war in Ukraine overextending a rally in crude oil prices.
No wonder then that the latest BofA survey showed investors holding the biggest tech "short" since August 2006, while staying long on energy and commodities.
(Danilo Masoni)
NASDAQ COMPOSITE: RIPE FOR A WARMING TREND? (0902 EDT/1302 GMT)
The Nasdaq Composite has rallied 3% off its May 12 closing low, as it attempts to prove its strength is more than just a bear-market bounce.
Meanwhile, one measure of the Nasdaq's internal strength has been in a deep freeze. That said, conditions may be ripe for a significant warming trend:
Last Friday, just two trading days after the Nasdaq's May-12 closing low, the Nasdaq New High/New Low (NH/NL) index fell to 3.9%, or its lowest level since a 3.6% reading on March 26, 2020. The March 26, 2020 print occurred just three trading days after the market's March 23, 2020 pandemic-crash low.
Back in March 2020, the day the market troughed, the measure v-bottomed after hitting 1.2%. That was the lowest reading since 1.1% on March 10, 2009, just one trading day after the Nasdaq's Great Financial Crisis low.
The measure has now edged up to 4%, and may well be on the verge of reclaiming its descending 10-day moving average (DMA), which ended Tuesday at 5%. The NH/NL index has been below its 10-DMA for 28-straight trading days.
Since late 2008, amid severe Nasdaq instability, there have been four instances of the NH/NL index putting in two sub-10% troughs separated by one to three months or so, which ultimately led to major market lows: 2008-2009, 2011, 2016, and 2018. In those four cases, the measure's average trough was about 3.8%.
The NH/NL index fell to 6% on January 28, and if Friday's low at 3.9% holds, this most recent average is about 5%.
The measure could of course fall further, and languish at extremely low levels. Its all-time low was 0.5% in late 2008. Nevertheless, it appears to be historically low, with significant room to rise. And in the event of a sharp upturn, the Nasdaq may not just see a few hot days, but instead a full-blown spring/summer heat-wave.
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)