Investor fear that the U.S. would fall into recession likely helped cause share prices to decline more than 10% early in 2016. Yet two economic data series – Y/Y % change in housing starts and the University of Michigan’s consumer confidence survey – continue to indicate that the U.S. economy is not on the verge of a renewed economic contraction.
In mid-February, investors changed their tune and have become increasing convinced that the U.S. will not slip into recession. The most recent reading on Housing Starts, which showed a 31% year-over-year increase, helped solidity that opinion. In addition, investors are reminded that housing start gains in excess of 30% typically preceded 12-month advances in the S&P 500 that averaged 10.5%.
Last week’s weaker-than-expected University of Michigan’s consumer sentiment survey was a bit less supportive, however, as it confirmed a multi-month downtrend. However, history says (but does not guarantee) that a 20% decline in confidence has traditionally been needed before the risk of recession became elevated. Finally, S&P Global Market Intelligence believes that economic and market conditions warrant the purchase of nine homebuilding stocks.