Feb 5, 2024: Who is pulling the rug out from under the housing and construction market?

Jeffrey Cohen, US Advanced Computing Infrastructure, Inc.

We see interest rates rising in an aggressive and significant matter. We follow the US Treasury 10-year note, which is up to just under 4.16%, and the 30-year is over 4.33%.

Interest rates rising has a few direct impacts (e.g., more expensive loans on consumer and business credit, secured loans, asset based lending), so business will slow. Mortgage rates will likely rise 100% with the 10-year UST Notes. The indirect impact is that the US Treasury will pay more to roll over its trillions of dollars in debt. However, on the flip side they will pay less if they want to buy back debt in open market transactions, and then the loss moves to banks, pension plans, and longer-term investors.

What we see is home improvement, materials, and tools & accessories stocks are down. Check out $XLB.

Momentum stocks are down sharply, these are your best 'sharpe ratio' stocks, which are falling with the overall US equity market. For an example, look at $TSLA.

This is an equity decline and we are watching it happen. It is difficult to watch.

Our recommendation is to look at longer-term debt (as a buyer) as we could see 5% yields on the US 10-year. That is an absolute buy point for us, unless things change.