Exchange traded funds cheered the robust housing sales
increases and falling oil prices Wednesday. It suggests the
housing market has taken a turn for the better and that consumers
will have more money to spend, thanks to relief at the pump.
IShares Dow Jones U.S.
Home Construction (
) surged 3% to 20.07 -- the highest price in more than four
years. It's rallied a whopping 65% year to date and 103% the past
year -- the most of any sector in the world. By contrast the
S&P 500 climbed 17.94% year to date and 22.58% the past
ITB sports the highest IBD Relative Strength and
Accumulation-Distribution Ratings combination -- 95 and A -- of
any nonleveraged ETF. That means its price action outpaces 95% of
the market and institutions are heavily buying shares.
SPDR S&P Homebuilders (
) rose 2.12% to 25.75 -- a five-year high. It carries robust 92
RS and A- Acc-Dis Ratings. It's surged 48.52% year to date and
74.56% in the past 12 months.
Better-Than-Expected Existing Home Sales
Existing home sales rose 7.8% month over month in August to an
annual rate of 4.82 million, National Association of Realtors
reported Wednesday. The rate surpassed expectations of a 2%
increase to 4.56 million and marked the highest level since May
2010. It's 12.6% higher than the 4.28 million rate for all of
last year, according to High Frequency Economics. Distressed home
sales made up about 22% of August sales, down from 31% in the
year-ago month. Inventories of homes for sale fell 18.2% year
over year and median prices improved 9.5% year over year.
Higher prices reflect rising sales of traditional homes and
fewer foreclosures and short-sales, noted Jim O'Sullivan, chief
U.S. economist at High Frequency Economics in Valhalla, N.Y.
New Construction Hits Four-Year High
In August, housing starts flew to an annualized rate of
750,000, up 29% year over year, the Commerce Department reported.
It was the highest since the fall of 2008 but lower than the
767,000 analysts projected.
"Housing is clearly in recovery mode," O'Sullivan wrote.
The market faces four major head winds, wrote Russ Koesterich,
global chief investment strategist at iShares, in his iShares
"1. Housing starts are still barely half of their 50-year
"2. Slower population growth and household formation are
likely to lead to less demand.
"3. There is still a huge shadow inventory of unsold homes:
properties that are in foreclosure, but have not yet been sold;
and properties that owners are holding off on selling until
"4. Consumer debt levels are still high by historic standards,
so people may be reluctant to take on more debt, even if mortgage
rates are low."
This means home prices have probably bottomed but will remain
flat for several years, which is what happened in other countries
with housing bubbles, Koesterich concluded.
The NAHB/Wells Fargo Housing Market Index, measuring
home-builder confidence, rose three points in September to 40 --
the highest reading since June 2006, the National Association of
Home Builders reported Tuesday. It marked the fifth straight
improvement in builder confidence. Expected sales over the next
six months climbed above 50 for the first time since February
2007. Builder sentiment improved in all-four major U.S. regions
-- the West, South, Northeast and Midwest.
"This report confirms the tides in the housing market have
turned," economists at Ned Davis Research wrote in a report.
Oil Down, Markets Up
Crude oil futures plunged to a six-week low after Saudi Arabia
-- the world's largest oil exporter -- said it would take action
to control prices, igniting speculation that it will boost
supply. What's more, the Energy Information Administration
reported that U.S. stocks climbed by 8.5 million barrels over the
prior week -- topping expectations. Stocks are 2.7% higher than
the year-ago period. Weekly production rose 8.5% year over
"There is clearly plenty of oil available to supply the needs
of a global economy that is growing at a relatively anemic pace,"
Ed Yardeni, president of Yardeni Research, wrote in his daily
client note. "Oil prices should be falling, but for the war risk
premium. Odds are they will continue to roller coaster."
United States Oil (
), tracking West Texas Intermediate, gapped down 4% to 34.17.
It's broken below both the 50- and 200-day moving averages, which
is very bearish.
Energy Select Sector SPDR (
), tracking the oil producers in the S&P 500, fell 0.89%.
SPDR S&P 500
) ticked up 0.27%.
PowerShares QQQ (QQQ), tracking the 100 largest nonfinancial
stocks on the Nasdaq, added 0.31%.
SPDR Dow Jones Industrial Average (DIA) also tacked on
Year to date, SPY has rallied 18%, above the market's
"With 20/20 hindsight, it appears that valuations were overly
depressed at the beginning of the year and that confidence in
policymakers to address Europe's problems was too low," Bob Doll,
senior adviser at BlackRock wrote in his weekly investment
commentary. "Additionally, it seems that many investors were
positioned too defensively and had some catching up to do."
Whether the rally can continue depends on how well economic
stimulus programs are working and a soft economic landing in
China, he wrote. "Given that valuations are not extended, markets
do have room to make further gains."
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