Last October, I predicted that housing could to be a driver for all sorts of good things in the economy.  [See “Will Housing Provide the Growth we are looking for?“] With Case-Shiller’s latest report showing house prices advancing a robust 10.9% year over year (compared to the same period a year ago), it is clear that residential housing prices overall have rebounded from recessionary lows. See graph.

Home prices are still below their 2006 peak but have recovered to 2003 levels

Source:  Bloomberg, May 28th, 2013

As has oft been written, a rebound in housing is a positive development for many reasons.  When house prices increase, the wealth effect kicks in.  Investors feel wealthier and they spend more, which in turn causes a ripple effect (also know as a multiplier effect).  Positive related effects range from expanded balance sheets for banks, increased furniture sales for retailers, greater demand for employees at companies supplying residential goods and services etc.

In tandem with better-than-expected housing data, consumer confidence data also showed a surprisingly positive increase to 76.1, which is almost 12% higher than the previous month as reported by Bloomberg on Tuesday.  Current GDP data confirm a housing rebound and steady overall growth despite a decrease in government expenditures due to sequestration.[1]

Looking to the market: Top performing industry groups confirm broader economic healing

This year, the top performing industry groups in the stock market show greater diversification compared to 2012.  As shown in the table below, housing related stocks were the top performers taking four out of the top ten slots – no surprise there (see table below).

With 2013, some of the newcomers include Toys, Electronic Office Equipment, Business Training, Travel and Tourism, Specialty Retailers, and Asset Managers.  Increased employment and higher confidence are giving consumers the wherewithal to spend again on discretionary items. And in the stock market, confidence is reflected in the retail investor’s willingness to rotate into stocks.

Dow Jones Total Market Industry Group

2013 Industry Group Leaders 2012 Industry Group Leaders


Airlines Mortgage Finance


Biotechnology Mobile Telecom


Toys Biotechnology


Electronic Office Equipment Airlines


Business Training Home Improvement Retailers


Travel & Tourism Home Construction


Full Line Insurance Building Materials & Fixtures


Specialty Retailers Investment Services


Investment Services Full Line Insurance


Asset Managers Broadcast and Entertainment

Source:  Barron’s May 22, 2013

Animal Spirits – What next for the market?

Consumer confidence is now the highest it has been since prerecession crises.  Consumers have spent the last few years deleveraging and paying down debt.  We are now seeing the fruits of that spending discipline – along with Federal Reserve policies to stimulate economy via low interest rates – reflected in the markets as well as the broader economy.   With the rebound in housing, improving employment and gross domestic product, “Animal Spirits” are here.




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