Meanwhile, Stocks climbed to record again with the S&P 500 and Dow closing out a sixth straight week of gains despite some volatility. For the week, the S&P 500 gained 1.56%, the Dow rose 1.27%, and the MSCI EAFE (developed international) gained 1.68%.
Here are the 3 stories this week that rose above the noise:
Homebuilder Sentiment in U.S. Held in November at Four-Month Low
The National Association of Home Builders sentiment gauge indicated that homebuilders, as a whole, have a slightly less optimistic outlook for real-estate market conditions than at any point over the last four months. Although homebuilders’ outlook remains positive, their sentiment receded slightly this month because of rising construction costs, declining buyer traffic, and a weaker sales outlook.
Homebuilders’ confidence has come a long way since the depths of the recession when new home construction bottomed at 478,000 units in 2009, well below the average of 1.4 million new homes constructed annually during the pre-recession market cycle. New housing starts are still significantly below pre-recession levels, but are on pace to nearly double this year relative to the 2009 bottom in home construction.
Fed Ponders How to Temper Tapering Without a Rate Increase
One of Janet Yellen’s first challenges as U.S. Federal Reserve Chairman will be figuring out how to cushion against a lurch in interest rates when she pares back the pace of the central bank’s bond buying. After sending 10-year Treasury yields more than a percentage point higher by fueling taper expectations in May and June, policy makers are now grappling with their options when they do reduce debt purchases, likely next year, that have swelled the Fed’s balance sheet to a record $3.9 trillion.
This issue will likely be at the forefront of investors’ concerns in 2014. Current Fed Chairman Ben Bernanke said recently: “We’re in unprecedented circumstances, we’re using policies that have never really been tried before – and multiple policies – and we’re trying to explain to the public how we intend to conduct these policies.”
Small No Longer Looks Quite So Beautiful
A recent article from the Financial Times details the current disagreement taking place among investment analysts regarding the outlook for small-cap equities. From the author’s point of view, the valuation of small-cap stocks has become very stretched relative to large-caps.
However, several prominent strategists believe small-cap outperformance will continue in the intermediate-term due to favorable macro conditions. In our view, with the valuation of small-caps reaching the upper-end of historical norms a modest reduction of small-cap exposure in 2014 seems warranted.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
