With an hour to go in yesterday’s trading, all S&P sectors were higher, and by the closing bell only health care and industrials were in the red.  Still, the rally looked tired yesterday and cautious buyers made utilities the best performer of the session.

Even though major indices only eked out gains, market breadth remains remarkably bullish.

Housing Dilemma

Yesterday, the National Association of Home Builders released its latest read on builder confidence.  The report was better than expected and possibly signals a turnaround for the weakest part of the U.S. economy. This morning’s release of mortgage applications saw a 3.6% increase, with purchases +2.0%, climbing for the first time in four weeks. The overall bounce to 62 from 58 was driven by gains in all three components, although traffic is still in contraction mode.

• Present 67 from 64
• Six Months 68 from 63
• Traffic 48 from 44

Homebuilders are getting a big break from the course correction at the Federal Reserve as mortgage rates, which were edging toward 5.0% are now around 4.4%.  The problem is the supply of lower priced homes.  These starter homes are a critical component for household formation and the overall economy.   The problem is profitability is so much better in higher priced homes.

Moreover, there continues to be regulatory hurdles, material cost and unmet worker demand.

NAHB Confidence

Still Building

The shift in housing was already anticipated by the stock market, as many individual stocks in the industry have come on strong, while key ETFs are also up big.  Note, I think there is a lot more room on the upside.

ITB (mostly homebuilders) +17.9%

XHB (material and construction) +19.5%

Gold Shines

I’m not sure why gold is doing so well.  Proponents might point to geopolitical events and uncertainty over Treasury yields.  But those issues are not new, so why now?  Again, I’m not sure but watching closely.  Personally, I think everyone should own some psychical gold, and from time to time, exposure via the stock market.

The Fed Explains

Today, we get the FOMC minutes, which will give investors a chance to see more of the rationale for the dramatic change of heart at the Federal Reserve.

In addition, we will get an explanation on how rates got to neutral after it was suggested to be a long way away. Moreover, how can the Fed not hike rates with the current labor market generating jobs and wages that normally scare the heck of policymakers?

Well, maybe the Fed is wiser and willing to adjust based on new realities in the economy rather than remain committed to an older playbook that didn’t anticipate the world we currently live in.