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Markets Bounce Back, Despite Weak Housing, China

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Market indices rebounded around mid-day from a lower start in the early trading hours: the Dow, now enjoying its longest winning streak since late May, gained another +151 points, +0.45%, while the S&P 500 came close at +0.40%. The tech-heavy Nasdaq outperformed the field, +0.62% on the day, while the small-cap Russell 2000 lagged but kept in positive territory, +0.20%. Market participants shrugged off worse-than-expected economic prints from China and kept its rally ongoing from late July.

Just in the month of August alone, the Dow has gained more than 1100 points. The Nasdaq has amassed more than 750 points since the start of the year. Only half way through the month, we’re already looking at some of the best market performances of 2022. Granted, this year has been a challenging one, but every week we find ourselves higher up from the mid-June lows keeps us hopeful we’ve passed through the worst trading scenario of the year.

Earlier today, we saw new survey results from the National Association of Home Builders, which reached negative territory with a headline number of 49 (anything below 50 represents contraction). It’s lower than the 54 analysts were expecting, and marks the eight-straight month lower for home-builder sentiment. This is the lowest monthly figure, in fact, since the early months of the Covid pandemic.

With interest rates rising from Federal Reserve policy directly affecting new mortgage rates, atop higher construction and labor costs, homebuilding is now said to be “in recession.” Builders are currently lowering their prices, not only to attract new buyers but to slow the rate of cancellations, which has doubled since April. However, we’re likely still in the early stages of this process, as a -5% discount on homes for sale at this stage is not likely to do all the heavy lifting; home prices were up +19.3% year over year, as of July.

Tomorrow morning, we’ll get a look at July Housing Starts and Building Permits. Both are expected to pull back further from 12-month lows posted last month — we are clearly well off the robust pace of new starts we had been seeing from November 2021 to April of this year. Likely we’ll see some numbers that further enhance this new “housing recession” narrative the national home builders are demonstrating.

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