I’m with no such reality on this market’s move; newsflow has been overwhelmingly positive over the last 4-6 weeks in terms of interest rates, energy costs, and geopolitics, even housing has been no worse than expectations. And for the most part corporates have reported decent earnings without a lot of nasty surprises. In the absence of negative newsflow, and without a lot of attractive alternatives, markets tend to float upward.
US housing stocks have been CRUSHED…over the last 15 months or so. TOL US is down 51% since its high in July 2005 while the S&P500 is up 10% over the same period…investors begain pricing in a housing slowdown well over a year ago, and to date the worst-case scenarios just haven’t panned out. These stocks are up because they were technically oversold in July and because they’re now trading on single-digit PE multiples…even after analysts have cut 2007 earnings estimates by over 50%.
Markets react to changing expectations…they move up on news that is good RELATIVE TO previous expectations, and they move DOWN when expectations are not met.
