The NAHB’s reading on homebuilder confidence was expected to go unchanged at a very strong reading of 86 in January.  Instead, the NAHB’s headline index fell down to a reading of 83. Although that is lower, it remains well above any pre-pandemic reading. In other words, homebuilders are less confident than they have been in the past couple of months but sentiment remains overwhelmingly positive.

Even after falling two months in a row, the overall market index and most of its sub-indices remain near record highs.  As for the regional indices, there is a bit more variation.  The index for the Northeast has seen the sharpest decline falling 10 points in January. That is tied with August of 2018 for the seventh-largest month over month decline on record.  While still in the top decile of historical readings, it is far lower than the other regions. On the other hand, albeit lower, the Midwest and the West are the two regions that remain at the highest ends of their historical ranges.

With earnings season underway, the next month will see the vast majority of the S&P 1500 homebuilder stocks report earnings.  The snapshot below is from our Custom Portolfios tool. This should give more color to the overall picture for homebuilders. As for the companies reporting, only one, MDC Holdings (MDC) has averaged a full day decline in response to earnings.  Additionally, historic beat rates are generally pretty strong across the board. Click here to view Bespoke’s premium membership options for our best research available.

One of the few economic data points released today was weekly mortgage applications from the Mortgage Bankers Association (MBA), and the data was positive.  Seasonally adjusted purchases rose 2.7% week over week to the highest level since the last week of November of 2008.  That eclipses the previous high of the cycle from late November of last year.

On an unadjusted basis, the average level of mortgage purchase applications is off to its strongest start to a year (through the first three weeks) since 2008.  As shown in the second chart below, the seasonal bottom for purchase applications typically occurs at end of each year. With that now in the rearview, purchases have been following the seasonal trend higher. This increase typically lasts throughout the rest of winter and peaks in the spring (usually in late April/early May as indicated by the blue dots). So far in 2021, purchase applications are not only following that seasonal pattern but are also running at a stronger pace than other years of the past decade.

While purchase applications were stronger, refinance activity took a step back in the most recent week.  The Refinance index dropped 4.72% week over week. Although that is lower, outside of last week it is still at some of the highest levels since last March’s spike higher.  That is also around levels not seen since the spring of 2013.

In terms of related stocks’ reaction to this data, initially this morning, that stronger reading in mortgage purchases led mortgage REITS as proxied by the iShares Mortgage Real Estate ETF (REM) to nearly break out from the past couple of month’s range. but the rally was stopped in its tracks by the release of the weaker than expected homebuilder sentiment reading from the NAHB. Meanwhile, perhaps a bit ironically, the S&P Homebuilders (XHB) have continued to rally, rising 2.37% to a new 52-week high.Click here to view Bespoke’s premium membership options for our best research available.

It’s Inauguration Day, and so far equities are welcoming in the new administration with a gain of more than 1% for the S&P 500 (SPY).  As to how that compares to the first day of past presidencies, in the chart below, we show intraday performance on Inauguration Day since the start of Reagan’s second term in the mid-1980s when our intraday data begins.  Excluded are the inaugurations for George W. Bush’s first term and Obama’s second term considering these fell on days that the market was closed; a Saturday in the case of the former and MLK day for the latter.

The second inauguration for Ronald Reagan was met with the strongest performance for the S&P 500 as the index steadily drifted higher throughout the day to rise 2.28% by the close. With the S&P 500 up over 1% today, it is on pace for the best Inauguration Day performance since then.  On average across all of these days, the S&P 500 has typically traded lower throughout the session with a leg lower in the early morning and another towards the end of the day (second chart).  Breaking performance down by political party, inaugurations for Republican administrations have averaged a move higher with a bit of a dip midday while performance during inaugurations of Democrats has been weaker. Much of this weakness, however, is due to Obama’s first inauguration which came during the throes of the financial crisis.

As for the ushering in of a new administration or four more years of the same, performance has also tended to be quite different.  As shown below, a president’s first inauguration over the past few decades has resulted in the S&P 500 dropping an average of 1.36% by the end of the day as the index steadily trades lower throughout the session.  Again, much of this weakness can be attributed to the sharp decline on the day of Obama’s first inauguration. Conversely, the second inauguration of a president has seen the S&P 500 steadily trade higher. Click here to view Bespoke’s premium membership options for our best research available.