Homebuilder stocks seem to be following the classic Wall Street scrip: buy before bad news turns into good news.
Wall Street lore says bulls can take comfort in the failure of beaten-down stocks to drop further when more bad news comes out. The idea is that this is a sign that bears who correctly anticipated the slump are finished with their selling and that the next major market event will be further buying by those who anticipate the next upcycle. The housing sector may be playing to this script. Yesterday, the National Association of Realtors (NAR) reported that U.S. existing home sales slowed from an annual rate of 6.3 million in August to 6.18 million in September, a bit worse than the 6.2 million forecasted by economists. Nevertheless major homebuilder stocks like Centex Corp. CTX, DR Horton Inc.DHI, KB Home KBH, Lennar Corp. LEN.N, Pulte Homes Inc. PHM.N, and Toll Brothers Inc. TOL rallied.
Business cycles don't turn on a dime, so it's likely we'll see plenty more bad news on the housing front, in terms of industrywide statistics and homebuilder earnings. But it looks like Wall Street is already looking beyond this.
Marc Gerstein, Director of investment research,Reuters.com is one analyst I track regularly. His posts are very insightful and often ahead of the curve. Here is his insightful take on the housing market.