Will the market get a summer of love?

Shutterstock photo

When I think of the traditional American economy, I think of cars and housing.

Images flash through my mind of the 1950s, when huge swaths of empty land were converted into suburbs and automakers reigned as the kings of industry. They were two of the hardest-hit sectors in the last five years, and this summer is likely to mark their comeback.

My thesis is that stocks tied to housing ( homebuilders and their suppliers ) and driving ( auto makers , parts manufacturers , and oil refiners ) will all benefit in the process. We have already seen the remarkable strength of the builders.

Yes, they're up big from October, but many of these names are still reasonably priced versus their levels over the post-2009 period. Unlike most equities in the market, they have not rallied for two years straight, so now could be their time to catch up.

Another trend we've seen recently is bullishness in refiners such as Western Refining . These stocks have traditionally done well between January and July in preparation for the summer driving season. Judging by employment and consumption data, U.S. consumers will go into Memorial Day this year in their strongest position since 2006 or 2007, which is good news for refiners.

That seasonality will also benefit housing because people typically move during the spring and summer. Overall, the next few months could feel surprisingly good for the economy.

The data suggests that this is already happening: Yesterday the Federal Reserve released its quarterly Z.1 "Flow of Funds" report , which showed consumer credit shooting up at a 6.9 percent annualized pace in the fourth quarter. That was the strongest reading since 2001! It was the fifth straight quarter that consumer credit grew, and it was finally big enough to offset contraction in mortgages.

Now I know that "debt is bad" and "this is how we got into trouble in the first place." But these things go in cycles, and we've just finished a nasty deleveraging process. Banks have also been loosening credit standards at the same time that loan demand is climbing, according to the Fed's Senior Loan Officer Survey . Put all those pieces together, and the leveraging cycle is now going in the right direction.

Another consideration is that vehicles need to be replaced, with an average age of about 10.5 years in 2010. That's up from about 9 years back in 1999, according to the National Automotive Dealers Association . Not surprisingly, auto dealers have been quietly adding workers in recent months, according to the Labor Department .

This is one way that the current period differs from the 1950s: Back then, railroads had entered a long period of stagnation and decline because of trucks. Now, thanks to containerization and high fuel prices, trains are working their way back into the economy. The train-supply industry , which consists of about six companies, has one of the strongest growth profiles anywhere.

But we've been hurting for a long time, overall. This summer could be the first in many years when things start getting back to normal in America.

(A version of this article appeared in optionMONSTER's What's the Trade? newsletter of March 9.)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing , Options
Referenced Symbols: OIH , WNR , XHB

More from optionMONSTER




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com