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Homebuilder Sector Leading Rally– Predicting A Housing Boom?

Mr Hanky, who posts on Capitalstool.com, wondered today whether strength in the Homebuilder Index portended a housing boom.

I responded that I doubt it. With the average wage stagnant and median household income in the toilet, new housing demand will remain weak. In the stock market, the housing ETFs are not really about housing. They’re overweighted with home furnishings and accessories retailers, suppliers, and manufacturers. Actual builders are only about 20-25% of the weighting.

Over the 46 years or so that I’ve been observing markets, I’ve concluded that changing stock price levels aren’t predictive of anything but stock price levels. They measure total liquidity and liquidity preferences. Those preferences could be simply a matter of shorts getting squeezed or bots reacting to support and resistance or following momentum.

The mass of traders and trading algorithms knows no more about the future of the economy than you or me. They’re just trying to make a quick buck. The idea that the stock market predicts the future is just another of Wall Street’s many shibboleths designed to suck the public in–including institutional suckers–while the securities dealers who run the show distribute inventory.

Join the conversation and have a little fun at Capitalstool.com. If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.

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