Back to top

Analyst Blog

Optimism on the ‘Fiscal Cliff’ front should provide a positive backdrop for today’s trading action. But a snap rally after a deal does get announced appears unlikely as the market was all along pricing a last-minute resolution.

Both sides in the negotiations appear to be coming down from their initial maximalist positions, making a deal very much within reach over the next few days. The market’s position reaction Monday reflected this reality and the trend will likely continue today as well.

We could see it at play in the bond market as well, with treasury bond yields steadily inching up. This makes sense as demand for the safe-haven treasuries should drop in a less-uncertain environment.

But we shouldn’t expect a significant carry-through from this trend, as the market was all along behaving as if the deal was a certainty. After a short period of weakness after the election, stocks have been making steady gains, ignoring the rhetoric from both sides.

Deal optimism aside, we have the December NAHB Housing Market Index, also known as the homebuilder sentiment index, coming out a little later. The expectation is for the measure to tick up a bit after the strong increase in November that took it to its highest level since May 2006.

The improving housing outlook has been a solitary bright spot on the economic horizon. As would be expected, this has made homebuilders like Pulte (PHM - Analyst Report), Lennar (LEN - Analyst Report) and Toll Brothers (TOL - Analyst Report) star stock market performers this year.

We will hear more about this favorable trend this week in the November Housing Starts data Wednesday morning and the Thursday fourth quarter earnings release from KB Homes (KBH - Analyst Report). Given the strong gains in homebuilder stocks thus far, investors are justified to worry if the recovery story has already been fully priced in.

We should keep in mind, however, that while earnings growth for the rest of the corporate world has run its course, it is just getting underway for homebuilders and other housing related companies. Total earnings for the Construction sector are expected to be up 28.7% in the fourth quarter, the highest of any of the 16 sectors.

This follows earnings growth of 55.8% and 42.3% in the third and second quarters, respectively. What this means is that homebuilder stocks should be able to sustain their momentum as long as they are able to sustain the earnings growth momentum.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
SUPER MICRO… SMCI 27.00 +10.25%
CANADIAN SO… CSIQ 38.34 +8.18%
BANCO DO BR… BDORY 16.78 +8.05%
CENTURY ALU… CENX 26.97 +7.97%
WILLDAN GRO… WLDN 11.38 +5.86%