Weighing the Week Ahead: Is the Housing Rally Over?

With soft housing data last week and higher interest rates expected, it is a good time to ask:

Is the housing rally over?

Last Week Recap

The big economic news last week was the Fed policy decision and guidance. Friday’s announcement of the Amazon purchase of Whole Foods grabbed the headlines. Attorney General Sessions’ Senate Testimony got the gavel-to-gavel treatment.

Our question from last week – a possible change in market leadership – did attract some discussion. Friday’s grocery news is still being digested, but the sector shifts were pronounced.

The Story in One Chart

I always start my personal review of the week by looking at this great chart from Doug Short via Jill Mislinski. Despite the mid-week Fed announcement, the result for the week was barely changed.

Doug has a special knack for pulling together all the relevant information. His charts save more than a thousand words! Read the entire post for several more charts providing long-term perspective, including the size and frequency of drawdowns.

Note to Readers

Thanks to all of those who offered suggestions for changes in WTWA and feedback on my first attempt. I am still working on many of the other suggestions.

I am off next weekend, but I will again try to post an abbreviated version including an indicator update.

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!

The economic news last week was mixed.

The Good

  • Jobless claims declined to 237K, maintaining the current record-low levels.
  • Forward earnings estimates are holding up. This may seem like faint praise, but those criticizing the use of analyst estimates point to excessive optimism and repeated cuts in forecasts. Brian Gilmartin tracks these estimates. He notes the comparative strength, but also warns about possible weakness in tech.
  • Chemical activity barometer “suggests continued growth through 2017.” See GEI for the full story.
  • Small business optimism remains high. I have upgraded my attention to this series, since the importance has increased. Sluggish business investment, hiring, and loans to small companies have all been issues. Improved confidence from small business owners is helpful on all fronts. While some have (already?) become pessimistic on the Trump agenda, those relieved of regulations have been more positive. Calculated Risk provides analysis and this chart: