US mortgage rates rose above 5% in recent days, crossing that mark for the first time since 2011. The jump adds to the headwinds for homebuyers, who were already looking at a red-hot housing market that’s pushed prices sharply higher. Not surprisingly, the bearish trend for homebuilders remains persistent. Tracking the reversal of fortunes for the industry this year can by seen with the ratio of a pair of ETFs: homebuilders (XHB) vs. the broad US stock market (SPY). As the chart below shows, XHB remains conspicuously weak vs. the broad market—a sharp reversal of 2021’s rally for homebuilders. At some point the bargain sign will go up. But for now, steer clear, at least until we have more visibility on the outlook for the Fed’s rate-hiking plans.
A lot has changed for the world economy and financial markets since Russia invaded Ukraine, including the outlook for renewable energy. For what should be obvious reasons at this point, the case has strengthened (to put it mildly) for developing energy sources beyond fossil fuels. Hold that thought as we refresh our memory banks re: renewable energy shares, which crashed last year after a stellar bull run in 2019. The sector (ICLN) is currently down on its luck, relative to Big Oil (XLE), based on relative performance (see chart below). But there are hints that renewable energy stocks are bottoming after a rough ride. It’s still early to assume the sector’s set to rebound in the near term, but ICLN’s starting to look intriguing (again) in the current climate.
For perspective, here’s how ICLN’s been trading recently:
By comparison, conventional energy’s trend, stellar though it’s been, is starting to look a bit played out, based on XLE. Or is this just a pause that refreshes? Unclear, mostly because the answer relies on what happens next in the Ukraine war.
Has the rally in US value shares stalled? That’s an increasingly topical question as the ratio for large-cap value stocks (IWD) and large-cap growth stocks (IWF) starts to look a bit peakish.
Then again, maybe we’re jumping to conclusions. Value’s recent pop vs. growth has been conspicuous but the rebound has been relatively brief to date. Some analysts point out that value tends to outperform when real (inflation-adjusted) yields are rising — a scenario that tends to weigh on growth shares. Comparing the value (IWD)-to-growth (IWF) ratio against the 10-year real Treasury yield yield (via Treasury Inflation-Protected Securities) suggests this relationship holds true, at least recently. But note that the real 10-year rate has shot up lately while the relative outperformance of value has faltered. Has something changed recently? Hmmm. Watch this space. ■