When we started publishing Cycles Trading back in January, we made several predictions.
In one of our late-January issues, I said that homebuilders have “clear skies ahead.” My reasons were:
[I]nterest rates are stabilizing. The Fed isn’t likely to hike in massive 75 basis-points steps.
The reason is slowing inflation. In December, consumer prices fell month-on-month for the first time in 2.5 years.
And mortgage rates have fallen by almost a full percentage point since they peaked in November 2022. Back then, the average mortgage rate stood at 7.1%. As of writing, the average mortgage rate is 6.3%.
And it will decrease further as the Fed slows down its hiking.
In other words, 2023 is going to be a bumper year for homebuilders.
All these trends continue…
And we continue to see proof that the 18.6-year real estate cycle is right.
We’re Not in a Bear Market
Take a look at this chart. It tracks the performance of a homebuilder ETF and a semiconductor ETF since January 24.
Both are up over 20%, and semiconductor stocks are trading close to their all-time highs.
The AI craze and ChatGPT hype helped the semiconductor sector. There’s no denying that.
But it happened for a reason. The economy is growing, and productivity improves all the time. The latest wave of AI enthusiasm is part of a bigger trend.
This is what experts don’t get.
They think that these “cyclical” stocks shouldn’t perform well.
Bloomberg discussed this confusion recently:
However, a number of signs suggest just as strongly that if this isn’t a bull market, it’s a very strange occurrence. For example, Bloomberg Intelligence’s Gina Martin Adams points out that two of the three leading sectors among US large caps are now at new highs — semiconductors and homebuilders — while transport is missing out. She said: “This doesn’t happen in a bear market.” And indeed, it’s very odd for usually highly cyclical sectors to be setting highs when the bears are in control.
This doesn’t happen in a bear market because we aren’t in one.
I’ve said it many times…
However, recession remains the default scenario this year, according to the majority of the talking heads you see on financial TV.
As I said in January… and have repeated many times since… “There’s no recession in sight.”
Before the 18.6-year cycle turns, we will see optimism, higher valuations, and credit creation at a level that you haven’t seen yet.
The second half of the cycle has officially begun. Both economic and stock price data suggest so.
But most investors prefer not to pay too much attention to it for some reason.
It’s their choice.
If You Listened to My Forecast, You’d Be Up 40%
If you had taken my forecast seriously earlier this year, you’d already have made over 20%.
And we have the whole second half of this year ahead of us.
I see more of the same.
Slowing inflation, no interest rate shocks, and the market that will finally realize that it has been grumpy for the wrong reason.
2022 was the year of fear. And I told my readers 2023 would be an up year.
If you joined my The Signal newsletter when we launched back in April, you would already be up 40% on one of our picks… and up on four others, with my “right stocks, right time” system.
And there’s more ahead. You can check it out here.
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson
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