Checking in on our Trend Analyzer tool, the clear biggest losers over the past week have been growth stocks.  As shown in the snapshot below, almost all of the growth ETFs regardless of market cap have fallen over 1% in the past week. Although these are the same groups that have posted some of the biggest gains on a year to date basis, that recent drop has brought them back below their 50-DMAs with some like the Russell Mid-Cap Growth ETF (IWP) and small-cap Russell 2,000 Growth ETF (IWO) falling into oversold territory.

On the other end of the spectrum, there are only a small handful of ETFs in this screen that have risen over the past five days. The strongest of those has been the Select Dividend ETF (DVY) with a nearly 1% gain in the past week.  That has cut into modest year to date declines (few other ETFs in this screen are also down year to date, but those are also dividend or low volatility focuses). In other words, price action over the past week has to some degree been a rotation of year to date performance.

In the charts below, we show the ratio of the Dividend ETF (DVY) versus the Growth ETF (VUG).  The ratio has been in a steep downtrend throughout 2023 meaning growth has trumped dividend payers.  However, this month’s reversal of that outperformance has resulted in the ratio to break out of that downtrend.  Zooming out, that rebound in the ratio has also coincided with an uptrend line off of late 2020 and 2021 lows. Time will tell how lasting this reversal in relative performance will be, but from a purely technical standpoint, it has come at a logical point.

Building Permits and Housing Starts are always reported on the same day, but today’s report for the month of August was one of the more bizarre ones we’ve seen in some time.  While Building Permits topped consensus forecasts by 100K (1.54 million vs 1.44 million), Housing Starts had a big miss coming in at just 1.28 million versus forecasts for a pace of 1.44 million.  In the case of Starts, it was the biggest miss relative to expectations since February 2019 and the weakest monthly print since June 2020. In terms of the divergent results relative to expectations, going back to at least 2002, it was the first time that either Building Permits or Housing Starts missed expectations by at least 100K while the other beat forecasts by at least 100K.

As shown in the table below, all of the strength and weakness in this month’s report was due to fluctuations in multi-family units.  While multi-family starts were down 26% m/m, multi-family permits were up 16% m/m.  Single-family units, meanwhile, were much more restrained with starts down just 4% while permits were up 2%.  Thus, what looked like a very volatile report at the surface was more grounded below the surface.

Looking at Housing Starts on a 12-month average basis shows that activity has slowed sharply over the last year.  At an average of 1.41 million over the last twelve months, total Housing Starts were the lowest in August since February 2021.

Again, while overall starts and permits have been driven by swings in multi-family units, both single-family permits and starts have actually started to stabilize and turn higher over the last two months.  If that trend can continue in the months ahead, it would be a positive shift in the trend.

The latter part of September has historically been one of the weakest periods of the year for the S&P 500, and last year was especially painful.  The chart below shows the percentage of S&P 500 stocks that posted positive returns from the close on 9/18 through the end of September over the last ten years. Since 2013, there have only been two years where more than half of the index’s components managed to eke out a gain during this period.  The average over the last ten years was just 36% which is a pretty low number when you think about it.  Even that looks good, though, when you look at last year (2022) when just 2% of stocks in the S&P 500 managed to rally during the last twelve days of September!

The table below lists the seventeen S&P 500 stocks that have traded down from the close on 9/18 through month end at least nine out of ten times over the last ten years. Of those seventeen stocks, four – Viatris (VTRS), Sealed Air (SEE), Simon Property (SPG), and Johnson & Johnson (JNJ) have traded lower during this period in all ten of the last ten years.  That being said, the range of declines varies widely from a median decline of 5.89% for VTRS to less than 1% for JNJ.  Besides those four stocks, another 13 in the S&P 500 have traded lower during this period in nine of the last ten years, including names like Freeport-McMoRan (FCX), Discover (DFS), and CVS Health (CVS).

Some stocks have managed to buck the late September blues, though. O’Reilly Automotive (ORLY) was one of the few stocks to rally between 9/18 and the end of September last year, and it has traded higher during this period in eight of the last ten years for a median gain of 1.73%.  ORLY is the only stock to trade higher during this period in eight of the last ten years, but Automatic Data Processing (ADP), WR Berkley (WRB), and Tyler Technology (TYL) have traded higher 70% of the time, and just seventeen other stocks have traded up at least half of the time.  Some of the more well-known names in this cohort include Domino’s (DPZ), Chipotle (CMG), Cisco (CSCO), and IBM. Unless you’ve been heavily exposed to these stocks in the later part of September over the last ten years, you’re probably counting the minutes until October!

For a second month in a row, homebuilder sentiment slumped with the NAHB’s Housing Market Index falling from its recent high of 56 in June down to 45 in August.  That is the lowest reading since April and the first back-to-back declines since last December.

As shown below, double-digit drops in two month spans are far from unprecedented, but the most recent one is in the bottom 2% of all two-month moves since the start of the survey in 1985.

The declines in homebuilder sentiment were observed across the country with the indices of each of the four regions of the country falling.  The charts are largely similar with each having come off of recent highs well below the prior peaks but still well off the lows put in place late last year.

As homebuilder sentiment has peaked, so too have homebuilder stocks.  This group was a big winner in the first half of the year, but so far in Q3, the iShares Home Construction ETF (ITB) has made a series of lower highs and lower lows.  In the process, it has fallen back below its 50-DMA and continues to trade below that level near its summer lows.

Again, relative to the broader market, ITB was a consistent winner throughout much of 2022 and the first half of 2023.  But with weaker performance over the past few months, that outperformance relative to the broader market (indicated by the upward trending relative strength line below) has been put to the test.