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Strange Development If We Are Pre-Recessionary

CAMS Weekly View from the Corner – Week ending 10/11/2019

October 14, 2019

Markets are forward looking as market participants are constantly running data inputs out into the future to factor how they may impact downstream prospects for the overall economy and its impact on various businesses.

Some businesses and industries are more sensitive if not vulnerable to economic stress than others as their primary business absolutely requires on-going economic health in order for them to prosper.

Placing the above together, we take the foresight of collective market participants via their pricing trend for a particular industry while focusing on an industry that is very sensitive to the economic backdrop which leaves us a micro view into the general consensus of whether recession is imminent or not.

With this we enter the housing industry via the Home Construction sub-industry within the Consumer Cyclical sector.  A sector which itself is very sensitive to the proverbial economic winds.

$DJUSHB - 10.14.19

Click For Larger View:

The above is a one year chart of the Dow Jones Home Construction Index.  The component companies that comprise this index are new home builders and various suppliers within the industry.  They are all quite reliant on the general health of the economy in order for them to thrive.

In the previous couple of months or so the “recession is imminent” talk has gained particular momentum.  On a larger scale, intermittently, said recession narratives have been consistent for the better part of the previous year.

The blue upward trend arrow draws our attention to the price action of the home building stocks since late summer.

Clearly market participants have been pointing to an expectation of forward strength for these companies.  Offered differently, market participants are not overwhelmingly fearful of imminent recession via the above message.

Broadening our focus of the above chart we can offer the same view when looking at the year-long chart in its entirety.  While the price action for the first half of the year had been choppy it clearly was not trending down which is what we would expect to see if recession was right in front of us.

To this point, with hindsight sharing its wisdom we can see that market participants were right in their beginning of the year assessments of the economic backdrop as they did not punish the above index nor has the economy gone into recession.

With the above as yet another observation we currently do not see the evidence that the economy is heading toward imminent recession.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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