Housing + FOMC comments

Markets are forward looking, and, hombuilder/real-estate-agent commentary has been more positive, ergo home and homebuilding related stocks have been rising, alongside the whole market. But I can’t see how conditions can have fundamentally improved, given the below framing…


The big US monetary policy meeting kicks off, what will they say…

Well, the downshift to 25bps, the progress on inflation, that it is too soon to pause, some economic indicators have weakened, some have strengthened, markets are potentially getting ahead of themselves.

As you may have noted, that’s super useful.

Depending which of those frames they place emphasise, will determine the way the market turns. On the whole, we are pretty unsure. The soft landing view would have the FOMC choosing to acknowledge the loosening in/of financial conditions as commensurate with the progress made to date on reducing inflation, healing supply chains, whilst not seeing signs of emerging stress in the labour market.

The hard landing scenario framing would be to reflect on the broad nature (meaning widespread) of pricing pressures, uncertainty in the outlook for energy and commodity supply (e.g. if there’s enough), geopolitical risks (that might lower growth and raise inflation) and the need to not be complacent in the fight against entrenched inflation expectations via the use of “higher for longer” rates.

The stock market is clearly aligned with the first paragraph there. So a view (expressed by the Fed) with an eye to the framing of the second paragraph would see shares/risky-assets likely notably lower. That selling pressure might last for a few weeks, if so, before trying to rise again, as further “good” data is received on the supply front (which it almost certainly will, in the form of weaker house rental inflation rates).

We won’t do anything, ahead of the meeting: we are a diversified DAA manager with a slight bias towards the soft landing, and don’t have to stress overmuch about one meeting, confident that the portfolios will do well in either/both/neither weather (mixing our metaphors here) conditions.

We have a bias towards cheaper stuff (as in Value, as a style/strategy, across fund managers and regions) and take the view that market timing this particular FOMC is too hard.

More broadly, our general headline is that if shares do charge too far ahead (too much “fighting of the Fed” and central banks more generally) we will sell into that strength.

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