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Housing's Rebound Is Lifting Consumer Spirits

29 June 2013 in Trading Ideas

The 6% drop recently experienced in the stock market appears to have bounced off the shrugging shoulders of US consumers.

The Conference Board’s measure of consumer confidence hit a five-year high in June, having risen for its third straight month.1 In theory, the reading portends good things for the US economy, about 70% of which is directly from consumer spending.

The more confident consumers profess themselves to be, the more likely they are to spend.

That healthy outlook from consumers has also received some validation from analysts following Amazon.com, a weather vane of online retail spending to the tune of an expected $75 billion of total company revenue in 2013. Earlier this week, ITG Research said it continued to believe that Amazon’s second-quarter revenue was tracking at about $16 billion to $16.3 billion – above current Wall Street consensus estimates of $15.7 billion.

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Amazon’s stock, by the way, makes up about one-fifth of the weighting of our Couch Commerce motif, a portfolio of stocks or online retailers. The motif is up 18.7% so far in 2013, and has risen 40.6% in the past 12 months. The S&P 500 has gained 11.0% and 23.6%, respectively, during those timeframes.

So, what is buoying the hopes and dreams of the US consumer? According to many economists, it’s as simple as homeowners continuing to watch the value of their homes track higher. As USA Today reported, the S&P/Case-Shiller Home Price Indices released earlier this week showed a record gain for April, with double-digit increases in both its 10- and 20-city indices.

However, the prospects for a sustained housing market in April aren’t necessarily where we are now, with interest rates hitting two-year highs. S&P indices chairman David Blitzer told USA Today that last week’s comments by the Federal Reserve and the resulting surge in Treasury yields sparked fears that higher mortgage rates could hurt a continuing rebound in housing.

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On the other hand, Blitzer said, the most recent Fed senior loan officer survey shows that some banks are easing credit restrictions, which would bode well for housing’s health.

Either way, how consumers feel about housing values should go a long way to determining how wide they open their wallets.

1Tim Mullaney, “Consume confidence soars in June,” USAToday.com, June 25, 2013, http://www.usatoday.com/story/money/business/2013/06/25/consumer-confidence/2455203/, (accessed June 27, 2013).