September 25, 2019

The HCM-BuyLine® is comfortably in an uptrend, even with all the volatility that comes with sideways markets. The markets have basically gone nowhere since 2018, despite a pretty nice run-up from the waterfall selloff in the last quarter. However, one-year returns are still flat. There are a lot of bears saying this is a top, but we feel this could be a period of cash build up. You have seen me write about cash build up many times over the years. The longer a market goes sideways or down, the more cash builds up on the sidelines, and once deployed, the stronger and longer a breakout will last.

09-25-2019 SPY

Since WWII, there have been three precedent instances where stocks were near all-time highs, within 3%, but produced little gains over the past 12-months and 20-months (<5%), similar to today. These prior periods were July ‘52-Mar ‘54 (mini-recession), May ’83-Dec ’84 (post-inflation peak) and Nov ’14-July ’16 (oil crash).  The current plateau stems from the trade war and overly aggressive tightening by The Fed.

09-25-2019 20 month

 

In 3 of 3 cases, the resolution was a strong upside move in S&P 500 with an average gain of 51% over the next 24 months (+30% to +73%).  In other words, “nowhere markets” have been resolved by a massive upside breakout in stocks. 

  • Existing home sales increased 1.3% in August to a 5.49-million-unit annual rate, the highest level since March 2018.
  • The consensus was for a 1.1% drop to a 5.37-million-unit rate.
  • Lower mortgage rates have certainly boosted demand, with both single-family and condo/co-op sales up for the month.
  • Sales also rose 2.6% y/y, the fastest pace since May 2017, with all four regions posting y/y gains.
  • Supply shortages continued to be an issue, as inventories fell 2.1% to 1.86 million units.
  • Months’ available supply drifted down to 4.1 months, well below the 6.0-month supply that is consistent with a balanced market.
  • Tight inventories contributed to faster home price appreciation, with the median home price up 4.7% y/y, the second most in a year.

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