Market sweats

On an analyst call Pulte Homes, the third largest homebuilder in the US, gave some sharp insights into the stiff resilience of the housing market, and virile recovery in the data post the easing of lockdown confinement. Home buyers have not been hit, the mortgage market is liquid and forbearance measures have prevented distress and foreclosure. And the US is basically, short of homes. There’s not enough of them. Hence the resilience of the market. Indeed its not just Pulte Homes taking the ball on the half-volley. Cheesecake Factory unlocked the doors of a quarter of outlets and is seeing a healthy appetite return. Microchip too is out talking recovery not just in China, but Europe and North America too. And there are many more. Auto inventories meanwhile are normalising as car sales pick up, truck loads are rebounding and Apple Maps data is back to pre-lockdown levels. Lfyt too, is talking up demand. People, tired of backgammon and charades, are hitting the road, booking vacation rentals and buying back in to ‘normal’ life. Mike Wilson, Morgan Stanley’s CIO, writing in the Financial Times nailed his colours to the mast. Dust down the BBQ, the rally will continue and increasingly start to tickle more cyclical parts of the equity market where valuations remain inexpensive. All good news. More driving is definitely good news for companies such as AAI; more eating out a boon for US Foods; and more domestic vacationing plays to the likes of Wyndham Hotels. Whilst the optimism is refreshing, with the S&P just shy of positive YTD levels there is a lot baked into a market rally that has been dominated by a vaunted cohort of digital darlings. And the rebound in much activity is coming from massively depressed levels. The economy had all but stopped. For investors then, after a breathless rally fuelled by cabin fever and Central Bank largesse, the upside through Summer is likely to come with a bit more sweat.