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“You’re going to need a bigger boat.” – Martin Brody, Jaws

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48 years ago today, the relaxing effect of swimming in the ocean permanently changed forever when the movie Jaws hit the screens in movie theaters nationwide.  These days, as the market rallies to 52-week highs and just recently moved past the 20% bull market threshold, the bulls look like they may need a bigger boat to accommodate the growing ranks of investors looking for higher stock prices.  The market has reached overbought levels in the short term, so it shouldn’t surprise anyone to see at least a pause in the rally as we close out Q2 and shake out some of these new bulls.

In the here and now, futures are modestly lower this morning following up what was a negative start to the week for most international markets yesterday and further weakness this morning.  It’s going to be another quiet week again for economic data (after a busy one last week), although the earnings calendar is starting to modestly pick up.  Today, the only two economic reports on the calendar are Building Permits and Housing Starts, and the only notable earnings report is from FedEx (FDX) after the close.  The economic data was just released, and Building Permits exceeded forecasts while Housing Starts were much stronger than forecast with the headline reading coming in at 1.631 million versus forecasts for a reading of 1.430 million.  While still an enormous beat relative to expectations, April’s reading was revised lower by 71K.

Markets were closed for trading yesterday, but the National Association of Homebuilders (NAHB) announced yesterday that its homebuilder sentiment for the month of June came in at a level of 55 versus expectations for a level of 51 and up from last month’s level of 50. The move back above 50 indicates that homebuilders have net positive sentiment for the first time since last July, ending a streak of ten straight months of 50 or sub-50 readings. You can’t blame homebuilders for being in such a good mood given where the housing data came in this morning.

In looking at the historical chart of homebuilder sentiment, the current move above 50 started from a trough of 31 in December which is a level that historically has been associated with recessions.  Also notable is the speed at which the index has rebounded from its trough.  While not as quick as the rebound off the COVID lows, the magnitude of the reversal has been among the swiftest on record.

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