Talking Points – April 2019

April 24, 2019 – Housing Remains Firm

New home sales for March were expected to show a decline of 2.5%; however, data out Tuesday morning actually showed new home sales were a positive 4.5% last month. 

There had been some concern that the housing market was cooling. While that is likely true in the previously hottest markets, the country as a whole could see a jump in building permits with increased construction over the summer months.

With the Great Financial Crisis being centered around too much exuberance in housing, it is only natural to grow concerned that housing has moved too high, too fast. Certainly, in some markets that is the case; however, in most markets inventory is tight and population growth would dictate a faster pace of building is needed. Increased building is typically a tailwind for many industries and the economy as a whole.

April 17, 2019 – Just How Giant Are U.S. Stocks?

More of a fun chart than deep analysis this week, although we will offer a takeaway.

We see below that notable U.S. companies are on their own, or combined with another, larger in market cap than entire European countries. Rather amazing.

U.S. stocks have dominated for most of the recovery since the Great Financial Crisis. At the same time, Europe has struggled. There is little doubt that the U.S. has many of the premiere companies in the world. Of course, even great companies can at times not be great stocks when their valuation becomes too rich. We don’t know when a catalyst will spark a sustainable rally in international stocks, but when it does they will have the tailwind of attractive relative valuations.

April 12, 2019 – Complacency

The stock market has had a nearly straight up move from the December lows without the usual retesting and consolidation. It is only natural that investors are gaining in their positive view.

The put/call data is a metric that looks at the number of investors buying puts to protect against the downside compared to those buying calls to bet on more upside. A low number typically means investors are more bullish, while a high number indicates more bearishness.

We see below, that after an extreme spike in the P/C ratio late last year we are now probing low levels.

Source: Strategas

Between this data point and other sentiment we evaluate, our view is that investors are somewhat complacent and perhaps needing some type of pause in the recent market advance. However, we do not view investors to be euphoric, which would indicate potential for a much bigger shift in market dynamics.

Source: Greg Towner, CFA, CMT