Stocks Get A Santa Rally, Real Estate Slumps
/Hi everyone,
Stocks and real estate sputter their way into the new year. Housing prices were flat again in the latest monthly report, based on the average of the 20 major cities tracked by the S&P/Case-Shiller report. Seattle home prices fell -1.1%, the worst among all major cities and the the fourth-straight monthly decline. Nearly half of the cities saw price declines, including San Francisco and Portland (down -0.7% and -0.6%, respectively).
The Southwest has seen a nice surge as of late, with Las Vegas homes up nearly +13% over the past year and Phoenix up nearly +8%. Despite recent declines, Seattle and San Francisco homes have still appreciated more than +7% annually, but those growth rates have tapered off compared to this past Summer. On average, homes are up roughly +5% nationwide in the past year.
Here is a complete city-by-city look:
In The Market...
The S&P 500 gained +2.9% last week. Let's look under the hood:
(price data via stockcharts.com)
The good news is that stocks bounced back somewhat coming off a three-week span in which the S&P 500 fell a collective -12%. Growth-oriented sectors led the way as most segments of the market were higher. This is nice to see. It appears the “Santa Rally” has been in effect, which is the seasonal tendency for stocks to gain over the last 5 trading days of the year plus the first 2 trading days of the new year. I don’t give much credence to seasonal tendencies, but it is fun to track nonetheless.
The bad news is that this recent rally could be short-lived. The period right around Christmas is the lowest volume time of the year, meaning it sees the least amount of investor activity. As investors come back from the holidays and volume picks up, we will have a better sense for whether the market has hit a bottom or if lower-lows are ahead.
Technically speaking, there wasn’t much improvement this past week. The end of the year tends to be a crap shoot too because many investors are looking to buy/sell solely for tax reasons. If I were to guess, I would imagine that there are a lot of investors who are looking to sell once the new year rolls over. That is a negative near-term outlook, based on nothing more than my gut opinion.
The bigger issue is the long-term view of the market. At the end of October, a month in which the S&P fell roughly -7.0%, I showed the below monthly chart of the S&P 500 index. I indicated that there were 5 points in history dating back to 1987 that resembled how the market looked at October-end. Two of those comparable points in time had positive outlooks, while the other three were starkly negative. The market was unable to rebound after the sharp October declines, making the outlook more and more bearish:
(created in stockcharts.com)
In terms of price movement there are comparisons to be drawn between today and the past two recessions. The most significant resemblance shown on this chart is that Relative Strength (RSI) is fading. This is shown in the smaller chart above the main chart. RSI has gone from a reading above 70 to falling below 50 in a few short months. As a reminder, we want RSI to stay elevated because a higher value means greater positive price momentum.
The one thing the above chart does not mean to indicate is that we should expect losses the likes of 2001 or 2008. The S&P fell more than -50% from those peaks, whereas today it is down roughly -20% from the recent peak. It does not mean we are in for an additional -30% decline. What it means is that the future long-term outlook is simply much more negative than positive, however negative that may be if it comes to fruition.
We added to our long-term Treasury bond position (SPTL) last week across most accounts. No other major changes on the week.
In Our Portfolios...
What's New With Us?
We enjoyed a fun Christmas hosting family. We mostly hung around our house, which was nice. Other than that it was a normal work-week for us. I hope you all have a safe New Year’s.
Have a great week!
Brian E Betz, CFP®
Principal