While the S&P 500 didn’t go negative until the end of the trading day following the Fed’s rate hike, the homebuilder stocks were down on the day much earlier.

After initially gapping higher at the open following what appeared to be a strong earnings report, KB Homes (KBH) quickly reversed its gains to trade lower by 3% in morning trading.  The reversal lower from KBH sent the entire homebuilder group into the red, and as shown below, the homebuilder ETF (ITB) went on to make a new 52-week low today.

As the broad US market and most sectors have traded to new highs lately, the homebuilders have been trading terribly.  A month ago, we saw Toll Brothers (TOL) trade positively in reaction to earnings only to give nearly all of it back over the last few weeks.  Today we saw KBH initially trade higher on earnings before sellers quickly started hitting bids.  Investors can’t seem to get out of the group quick enough lately.

Below is a chart comparing US Housing Starts to the homebuilder stocks going back to 2006.  As you can see, prior to 2017, the two tracked each other extremely closely.  Last year, though, the homebuilder stocks diverged from Starts by going on an epic run higher.  Starts just couldn’t keep up.

So far in 2018, Starts have continued to trade sideways, so it appears as though the homebuilder stocks simply got ahead of themselves last year and are now mean reverting to get more in line with the historical relationship.

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