Hammer time: Housing starts surge, builder sentiment turns rosy

HAMMER TIME: HOUSING STARTS SURGE, BUILDER SENTIMENT TURNS ROSY (1100 EDT/1500 GMT)

Market participants, embarked upon a holiday-shortened week with a shot of adrenaline from the housing sector.

Groundbreaking on new American homes (USHST=ECI) jumped by 21.7% last month to 1.63 million units at a seasonally adjusted annualized rate (SAAR), a 16.5% surprise to the upside, according to the Commerce Department.

That's the highest reading in over a year.

Building permits (USBPE=ECI), considered to be among the housing market's most forward-looking indicators, also increased more than expected in May, rising 5.2% to 1.49 million units SAAR, or 5.0% to the north of expectations.

Both single- and multiple-unit projects shifted into higher gear.

"Builders got a head start on the summer sales season in anticipation of improved demand for both single-family homes and apartments," writes Ben Ayers, senior economist at Nationwide.

"While headwinds for housing demand remain, the lack of options in the market for existing homes is driving more interest in new builds and boosting sentiment among builders," Ayers adds.

Speaking of builder sentiment, homebuilders celebrated Juneteenth on Monday by bouncing back into optimist territory.

The National Association of Homebuilders' (NAHB) Housing Market index (USNAHB=ECI) rose 5 points in June to land at 55, its first upbeat print since last July.

A number higher than 50 indicates net optimism among the survey's participants.

Potential buyers seem to be turning to new builds as current homeowners - many of whom refinanced at ultra-low COVID-era rates, are in no hurry to swap for new digs at a 30-year fixed mortgage rate hotter than 6%.

"Builders are feeling cautiously optimistic about market conditions given low levels of existing home inventory and ongoing gradual improvements for supply chains," said NAHB chairman Alicia Huey.

And last week's Fed pause didn't hurt matters.

"The Federal Reserve nearing the end of its tightening cycle is also good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans," adds Robert Dietz, NAHB's chief economist.

But of course the most forward-looking housing indicator is the stock market, which reflects where investors see the sector headed over the next six to twelve months.

"The ongoing bounce in housing starts and new home sales, and the surge in homebuilders’ stock prices, is fueling the emerging narrative in parts of the commentariat that housing is now recovering," Pantheon's Clancy adds.

Rebased, the Philadelphia SE Housing index (.HGX) and the S&P 1500 Home Building index (.SPCOMHOME) have handily trounced the broader market over the last twelve months, surging around 84% and 54%, compared with S&P 500's SPX 20% advance over the same time period.

At last glance, the SPCOMHOME and HGX are up 1.3% and 0.9%, respectively on the day.

(Stephen Culp)

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U.S. STOCKS KICK OFF THE WEEK TO THE DOWNSIDE (1006 EDT/1406 GMT)

The main U.S. indexes are lower in early trade on Tuesday. This as markets continue to consider recent hawkish commentary from some Federal Reserve officials.

Nearly all S&P 500 sectors are red with energy SPN taking the biggest hit. NYMEX crude futures CL1! are now off more than 2% on the day.

Consumer discretionary S5COND is the sole gainer.

Under the surface, banks (.SPXBK), (.KRX) are among underperformers.

The FANG index NNYFANG and the DJ Transports DJT are trading up slightly.

Meanwhile, the SPX has risen five-weeks in a row, while the Nasdaq has gained for eight-straight weeks.

The SPX last rose six-weeks in a row in November 2019. The Nasdaq last rose more than eight-straight weeks with a 10-week run of gains in March 2019.

Here is a snapshot of where markets stood shortly after 1000 EDT:

(Terence Gabriel)

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AMAZON.COM TO TAKE TOP SPOT IN BEAUTY MARKET BY 2025 - MS (0927 EDT/1327 GMT)

Amazon.com Inc AMZN will overtake Walmart WMT as the top player in the beauty market by 2025, Morgan Stanley says, as e-commerce trends outpace brick-and-mortar growth in the segment.

Analysts at MS led by Simeon Gutman forecast Amazon to take the lead in the beauty segment by 2025, representing 14.5% of the market that could reach $180 billion by 2025. They expect Walmart to hold 13% share.

The bank projects the beauty market to grow at pre-pandemic level of 3% growth rate by 2025 after averaging about 4% this year.

Within e-commerce, Amazon could represent 46.5% of the market by 2025, from current levels of 43%, Gutman says.

Morgan Stanley also notes Ulta Beauty and Sephora have regained market share since the pandemic, and expects skin care - the largest and fastest growing sub category in beauty - to become a bigger part of Ulta.

(Roshan Abraham)

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INOPPORTUNE TIME TO TURN BULLISH, MORGAN STANLEY WARNS (0914 EDT/1314 GMT)

The benchmark S&P 500 index is on track for its fourth straight month of gains as investor sentiment and positioning turns increasingly bullish, a 180 degrees shift from the start of the year.

But, investors may be in for a "rude awakening", said Morgan Stanley's Chief U.S. Equity Strategist and Chief Investment Officer Michael Wilson in a note on Tuesday.

"Fading fiscal support, less liquidity, and the impact of inflation falling faster than expected contribute to our 2H23 caution," added Wilson.

"Equity markets are as stretched as they can get with market participants wary of missing a potential new bull market."

The S&P 500 is up 14.8% so far this year, while the tech-heavy Nasdaq IXIC has jumped 30.8% as big tech and growth firms rally on bets of AI boom since late March.

"We believe in the AI theme... We just don't think it will prevent the deceleration that is already in motion for this year," Wilson said, also pointing to troubling divergence on the Nasdaq.

The Morgan Stanley strategist does acknowledge that they have been "so wrong" about the S&P 500 this year. Nevertheless, Wilson has decided to stick to their growth outlook, with the inflation surprise last week on the downside expected to have a negative impact on top line growth.

For trades, Wilson recommends going long on consumer staples over discretionary, long on defensives over cyclicals, long on healthcare over tech, and long on companies with high operational efficiency over those with low efficiency.

He also cautioned against companies with high financial leverage as the Federal Reserve remains committed to beating inflation and will be slow to reduce interest rates.

(Bansari Mayur Kamdar)

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S&P 500 INDEX: THE ROCKET MAY BE SPUTTERING (0900 EDT/1300 GMT)

Since its mid-March low, which was around the time of the most intense period of the recent banking sector stress, the S&P 500 index SPX mounted an impressive turnaround.

This recovery kicked off within what some would say was the orb-of-influence of the spring equinox, which occurred on March 20.

Proponents of Gann Theory, or methods of technical analysis developed by W.D. Gann, as well as other traders with an astro-focus, may look for either an acceleration of the prevailing trend, or a reversal, around the summer and winter solstices, as well as the fall and spring equinoxes.

Just looking back over the past five-and-a-half years or so, a number of major reversals in the S&P 500 have developed around these potential turn dates:

The summer solstice takes place June 21 at 1058 EDT/1458 GMT.

Indeed, into last Friday's 4,448.47 intraday high, the SPX has rallied as much as 13% in a little over three months. However, of concern, the index then ended a six-day winning streak, essentially right around a powerful Gann Line intersection which was around 4,445.

E-mini S&P 500 futures ES1! are suggesting downside follow-through at Tuesday's open. Thus, the SPX's five-week winning streak may be in jeopardy when the regular session kicks off.

In any event, it remains to be seen if the SPX is primed for a much more severe reversal, or if what has been a rocket-ride off the March trough quickly resumes its flight.

On weakness, traders will be watching SPX support at 4,325-4,311 then 4,250.

Resistance is now at 4,440-4,449 ahead of 4,480 then 4,505-4,535.

(Terence Gabriel)

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