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US Markets faltered this week after reaching a five-year high and coming within 800-points of an All-Time record - not bad considering what a tumultuous few years we have had.
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Many investors fear that disaster is yet to strike. The mainstream media continues to focus on stock performance rather than underlying issues and US lenders have begun to relax their credit criteria in an attempt to stimulate investment. While the S&P 500 performance remains bullish, underlying indicators point to a steady investment environment.
One such indicator of investors’ willingness to spend and of a continued recovery of the US economy is New Housing Starts. The new housing environment is a reflection of general risk tolerance and the movement from cash investments back into development indicates investors are more confident of their own financial situation and of the future. The August new housing data showed further gains have taken the market to a two-year high, reinforcing the US economic recovery.
With prices still well below previously inflated highs, the US housing market is an appealing investment. Record low borrowing rates and ‘free’ money for US banks mean the opportunity to lock in 20-year mortgages are attracting savvy investors. Of greater importance is the knock-on effect for builders, tradesmen and retailers. Housing drives the organic growth that is required to sustain the recovery in US markets.
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US home builder, Toll Brothers experienced record share price growth throughout 2011/12
“She’ll be Right, Mate” may just be the call of the week! The S&P 500 fell for four straight sessions amid speculation about the state of the US economy. The potential for equities markets to take another dive is ever-present and investors may want to take refuge in other areas of the economy such as housing and employment, which continue to prove that this market is heading north. The Dow continues to track true to its Elliott Wave prediction, finding resistance at 13,600 and beginning a corrective trajectory.
A large-scale correction still looms for US markets but with underlying economic strength and an upcoming election, the mood of the US markets in October looks like it will continue to be a positive.
Stay Prepared,
Lachlan McPherson
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