• Overview

    The Mortgage Bankers Association’s weekly gauge of mortgage applications showed that applications for a loan to purchase a home were 16% below last year’s level.

    Factors like rising rates and home prices have weighed on builder sentiment. The National Association of Home Builders’ index gauging builder confidence declined for the sixth month in a row in June to its lowest reading since the same month in 2020.

    No wonder housing stocks are falling. Two gauges of residential home building, housing starts and permits, fell further than expected in May. Starts fell 14.4% month over month while permits dropped 7%.

    Chart 1: Housing stocks feeling the pinch (S&P500 Home Builders sub-index)

    Source: Bloomberg


    The rebound in Chinese credit supply last month has resulted in idle money sneaking back into equities. Last month’s jump in loans was dominated by short-term lending, an indication that companies and households remain reluctant to borrow. Amid a housing slump, where do you think some of these funds are going?

    At the same time, the stock rally enjoys little support from economic fundamentals. Industrial production is growing only slightly and consumer spending is contracting.

    You could argue that the gains are on shaky foundation but since when have Chinese stocks traded on economic fundamentals? Liquidity and sentiment has always been a key driver in a market dominated by speculative retail investors.

    Chart 2: Chinese equities rebounding? (CSI 300 Index)

    Source: Bloomberg


    Royal Caribbean, Carnival and Norwegian Cruise are the three biggest S&P 500 decliners this month, each down well over 30%. Airlines also are among some of June’s worst performers. The 7-member S&P 500 Hotels Resorts and Cruise Lines index is trading at the lowest since November 2020 and over 35% below its Feb. 2022 peak.

    Travel and leisure are among the first luxuries to go as soaring fuel and food costs erode the cost of living. Plus, fuel is a big cost for cruise ships and airlines, which weigh on profits.

    Signs are emerging that the consumer is slowing down. Retail spending growth slowed in May for the first time in five months.

    Chart 3: US hotel and cruise line stocks getting belted

    Source: Bloomberg

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