The home construction sector is at an interesting crossroads, both in terms of industry fundamentals, and investor sentiment. Homebuilder stocks have rallied since the second half of last year as investors have anticipated a major turn for the area. Low interest rates were expected to help borrowers, and ultimately create demand for new homes. Reduced foreclosure rates created optimism as investors believed that �shadow inventory� issues with bank owned properties may have subsided. Meanwhile compelling valuations for homebuilder stocks sucked in deep value investors. But now it looks like homebuilder stocks could turn out to be the next bear market victims as the US economy stumbles and financial institutions have to re-evaluate their loosened foreclosure policies. A change in the fundamental picture has the potential to create a major sentiment imbalance as deep value investors no longer have cheap prices to justify their holdings, and turnaround investors now face questions as to whether the industry really HAS turned. The situation leaves the group vulnerable to a major price drop as PE multiples compress, while earnings levels simultaneously deteriorate.
SPAM We caught some too - our two energy swing plays from Wed were both up around 8% on the day (see XLE chart which was posted before market open)... Y'all payin' attention here??