Although homebuilder sentiment came in stronger than expected for the month of May, data on Housing Starts and Building Permits for April came in soft.  As shown in the table to the right, Housing Starts came in at a seasonally adjusted annualized rate (SAAR) of 1.172 million, which was 88K below consensus forecasts for a rate of 1.26 million.  While that looks like a big miss on the surface, we would note that we have seen some volatile readings in this indicator over the last several months.  As recently as last December, Housing Starts actually missed estimates by 140K.  Building Permits also missed estimates in April, although the magnitude of the miss was considerably less.

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Looking at Housing Starts, after making a lower high in February, current levels are now a little more than 11% off their cycle peak of 1.32 million from last October.

As mentioned above, Housing Starts have been considerably more volatile in recent months than Building Permits.  This can also be seen in the chart below, which shows a much smoother progression from month to month. That said, Building Permits are also close to 10% off their cycle peak back in June 2015.  But if you recall, that peak was induced somewhat artificially by a surge in filings for multi-family permits ahead of the expiration of tax credits which pulled activity forward.

Finally, the table below breaks down both Housing Starts and Building Permits by type of unit and region.  In terms of Housing Starts, what we found encouraging was the fact that all of the weakness was in multi-family units, which declined 9.2% m/m and 13.1% y/y.  Single-family units, on the other hand, rose 0.4% m/m and 8.9% y/y.  On a regional basis, weakness in this month’s report was primarily in the Northeast, where starts are down over 30% on both a m/m and y/y basis.  In the case of Building Permits, we saw the opposite trend where all of April’s decline was due to weakness in single-family units, while multi-family units actually rose slightly.

As you may have already seen, Amazon.com (AMZN) marked the 20th anniversary of its IPO today, and what a ride it has been.  We’ve all seen the stats, but put simply, from its split-adjusted closing price of $1.958 on 5/15/1997, AMZN has rallied more than 48,800%.  Yes, you read that correctly, 48,800%!  In other words, a mere $100 invested in AMZN after its first day of trading would now be worth just under $49,000 today!

In retrospect, just buying and holding AMZN twenty years ago was a no-brainer, but for the twenty years that it has been trading, the hardest thing for most investors was probably not to sell.  The chart below shows historical drawdowns from all-time highs for AMZN going back over the last 20 years.  As you can see, the ride up for AMZN has been anything but smooth.  While it may seem like AMZN does nothing but go up these days, it’s had plenty of rough patches.  In fact, for a seven-year stretch from the Spring of 2000 to the Spring of 2007, AMZN was consistently more than 50% below its prior all-time high, and at one point it was down 95%.  When you look back at the entirety of its life as a public company, AMZN has actually been at least 50% below its all-time high more than 36% of the time!

Even as recently as last March, the stock was down over 30% from an all-time high in what was the eighth such 30% drawdown (red line) since it came public.  Based on today’s price, that would be equivalent to a decline of $289/share.  These kinds of drawdowns look easy in retrospect, but they’re extremely hard to stomach in real time.  A lot of investors in AMZN now would have a hard time swallowing a decline of that magnitude today.  Would you?

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After a weak start to the week on the economic front, homebuilder sentiment for the month of May surprised to the upside.  According to the NAHB, homebuilder sentiment rose from a level of 68 (which was also the consensus expectation) to 70, which marks the second highest monthly reading of the recovery.  The table to the right and charts below break out this month’s report by region and category.  In terms of sales and traffic, homebuilders are seeing and expecting a pickup in sales, even as traffic declined slightly.  In the case of Future Sales, sentiment hit its highest level since June 2005, so a cycnic could still argue that the majority of the improved sentiment is built on optimism rather than actual conditions, although we would note that the gauge of Present Sales is also near a high.

On a regional basis though, every region besides the Midwest saw a pickup in sentiment this month.  The biggest gain this month was in the Northeast as the spring selling season kicks into gear.  That said, sentiment in this region is still well off its highs of the cycle.  The only region of the country where homebuilder sentiment hit a new cycle high was in the South.

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Wall Street analysts — the people that make all those buy/sell/hold recommendations — take a lot of heat.  Over the years, investors have become more and more skeptical of analyst calls, which these days are viewed more as lagging indicators than anything else by the self-proclaimed “smart money.”

For whatever reason, though, analysts have been right on the money so far in 2017.  In the chart below, we’ve broken up the S&P 500 into deciles (10 groups of 50 stocks each) based on a stock’s consensus analyst recommendation at the start of the year.  Decile 1 all the way to the left of the chart contains the 50 stocks that were most loved by analysts at the start of 2017.  Decile 2 contains the next 50 most loved stocks, and so on and so forth until you get to decile 10, which contains the 50 stocks that were the least loved — or most hated — by analysts at the start of the year.  For each decile, we’ve calculated the average year-to-date percentage change of the 50 stocks.

As shown in the chart, the 50 most loved stocks by the analyst community at the start of the year are up an average of 11.37% YTD.  The next four deciles have posted strong average YTD gains as well, and then once you cross into the bottom half of the S&P 500, performance gets weaker.  In fact, the 50 most hated stocks by analysts at the start of the year are actually down an average of 0.74% YTD.

So has the analyst community suddenly gotten a lot smarter and much better at picking stocks?  Or is this an example of the popular saying that “correlation does not imply causation?”

Our best guess is that analysts are not doing anything differently this year than they’ve always done.  They still like the stocks with the healthiest fundamentals and/or growth prospects and dislike the stocks with the weakest fundamentals.  It’s just that investors this year are buying the stocks with the healthiest numbers and avoiding the stocks with the weakest numbers.  We’ve indeed seen a huge spike in investor optimism since the election last November based on a number of surveys, and this probably means that more investors are putting money to work.  Surely, some of this new money on the retail side could be flowing into the stocks that their brokers’ analysts like most, so that could also be a factor.

Again, for whatever reason, the analyst community is off to a hot start in 2017, so some back-patting is warranted.  We have a hunch, though, that eventually these numbers will mean revert, just like most strategies always do.

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