Stock bulls have struggled to mount a lasting rally last week with investors still nervously monitoring Treasury yields. Rates on the 10-year note breached +1.7% for the first time in over 15-months. The sharply higher interest rates are again weighing on growth stocks, particularly tech companies.

Fundamental analysis

Housing market

Investors are also getting a little nervous about the pressure higher rates might be putting on the housing market, as well, with rates on the 30-year benchmark hitting a 9-month high this week. Today’s 3.09% is still not “high” but analysts fear if they keep rising, more buyers will be priced out of the market and we will see a lot less refinancing and pulling money out.

Keep in mind, the housing sector has played a significant role in the economic recovery, really defying all odds to deliver some of the strongest gains of any asset class in 2020.

Far more Americans benefit from climbing home prices than surging stock prices, with homeownership the top contributor to household wealth. Higher home prices also contribute to the “wealth effect”, where consumers feel more financially confident when their houses and stock portfolios increase in value, therefore are more willing to spend and borrow money.

Of course, when those gains begin to fade, it can have the opposite effect on consumer behavior. Data so far shows February was a rough one for the sector, largely due to winter storms.

But home builders are also getting hammered by record-high lumber prices and rising costs for other inputs, including labor, which has been pushing the builder outlook down since November.

Supply constraints also mean new home construction is moving at a snail’s pace. More would-be sellers of existing homes are thought to be holding off and even changing their minds, too, both due to elevated prices for their next purchase as well as slim inventory to pick form.

Next week brings February data for Existing Home Sales on Monday and New Home Sales on Tuesday.

Transportation industry

Crude oil got crushed last week, tumbling -8%, despite surging gasoline demand as the economy fully reopens in several states. Keep in mind, however, gasoline demand compared to last year, right before the pandemic lockdown, is still down by double-digits. Let’s also extrapolate out a bit and consider how much money Americans have been saving by not having to drive or commute for work or travel to as many kids and family events. Meaning how much and where will most American families have to tapper back consumer spending as their monthly transportation expense starts to rise?

You then have to ask yourself who will most likely be the people getting to stay and work from home? I suspect it’s more of the higher wage-earning families who will have even more expendable income and time as they are not forced to come back to the workplace.

So the lower end probably sees their budget get tighter as they have to again start spending more on transportation, while the very upper end might take some type of hit with higher corporate, investment, and individual taxes coming. 

One could argue it’s that group that will get to stay working from home that will see the greatest slack in the budget and room for additional spending.

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News and data to watch

Economic data next week includes Durable Goods Orders and IHS Manufacturing and Services PMIs on Wednesday; the final estimate of fourth-quarter GDP on Thursday; and Personal Income and Outlays on Friday. The latter report will also have the latest PCE Price Index, an inflation gauge the Fed tracks closely.

The pandemic itself continues to create waves, with things in Europe just an all-around mess that seems to get more convoluted every day. Covid cases are again spiking and some countries are reimplementing business restrictions and lockdowns, while the countries are also having a vicious fight over vaccines and travel passes.

It’s causing a great deal of confusion as well as uncertainty about the timeframe for the global economic recovery and is likely going to weigh on revenues for companies doing business in those countries. It’s also not the best news for the travel sector and it’s definitely not bullish for oil.

Again, a lot of moving parts for investors to track as they try to figure out how and when it’s all going to come together as the world transitions to the post-pandemic “normal.” 

housing sp500

Technical analysis

We have a small divergence on a daily chart between Advance Decline Line and SP500 price. It is not very strong and clear. So, I think there is still a chance we will see a test of important Gann range 4000 – 4100. Besides, SP500 usually tests psychological levels. It is not a rule, but taking into account cycles we likely still have time till the next sell-off. Besides, psychological levels in most cases cause massive profit booking. 

Also, we have multiple support levels – 3860, 3830, 3770. In any case, we are in the bull market till SP500 holds above 3600. With that in mind, I am waiting for a strong swing signal to short this market. Till that moment I will engage only on intraday and short-term trades.

Can US Housing Market Crash SP500 by Inna Rosputnia

Wishing you a great week!

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