Worry of the hour: The US housing slump [View All]

[NVMojo]

The FED insists that a weaker-than-expected US housing market will not be the cause of a US recession, and their professed priority remains too-high core inflation. Yet they have stopped raising short-term rates. The ECB has also paused, and the BOJ will not be moving anytime soon.

Ostensibly, this is giving equity investors hope for a continued rally. The worry, however, is the weakness in the US housing market, given its high historical correlation with real consumption growth, its 12-month lead over the S&P 500 since around 1996, and the financial leverage that was the financing the housing boom. Thus the next inflection point for the US market could very well be a capitulation by investors as they realize that the US is in the early stages of a recession.

Seasonally speaking, October has historically been a month of high market volatility and more than its fair share of market crashes and annual troughs, so if there is capitulation in the U.S. market, it could come in October.

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http://www.yeald.com/Yeald/a/48521/worry_of_the_hour__the_us_housing_slump.html