Connecting the Economic Dots

By Matt Schreiber – WBI President and Chief Investment Strategist

So much of the economy in the world and the United States is about connecting the dots. There are several warning signs and events that I believe influence market turns. Let’s start with the housing segment; this sector is a huge piece of the economic puzzle. Housing’s combined contribution to GDP generally averages 15-18%, and signs show the housing market starting to climb again. We see building permits and new home construction starting to bump because mortgage interest rates just improved. The interest rate on a 30-year mortgage is now around 4%, down from nearly 5% in November 2018. Having a lower interest rate allows consumers to buy a bigger house at a higher price for the same payment. This could help loan originations to rise again, which has boosted the financial sector in the past. We are also heading into prime home buying season, which typically lasts from March to June. According to the Wall Street Journal, 40% of home purchases occur between these months and sellers are closing on their homes within 73 days. Many people are finding and buying homes quickly, which is good for the economy. This could, in turn, help the industrials and materials sectors which are all part of the home building and buying experience.

Consumer spending, which drives about 70% of the economy, is a bit soft at the moment, but recent support from the Fed and abating political harangue could change the game. We’re starting to remove the impediments and have positive consumer sentiment again. All of a sudden, the things investors worry about which cause them to think the future looks dim, could fade. Now that stock prices are starting to rise again after Q4 losses, we could see consumers begin to spend again. While this tax season may not have produced the generous returns consumers expect, as long as consumer spending does not decline I believe the clouds will start to part. I think because of the positive geopolitical environment and quantitative easing, consumer sentiment could become positive. Spring has sprung, and the markets may spring too.

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