Weekly Outlook: Housing Data Roars Back To Life, Finally

• Home construction in the US surged to the strongest levels in more than a decade in August. Housing Starts and Building Permits jumped to the highest monthly rates since 2007.
• Patience is a virtue. As we've discussed for several months, the forward-looking housing market indicators including mortgage demand and commentary from the public builders forecasted a strong recovery in 2H19.
• At long last, the stubbornly slow-to-react single-family housing data has benefited from the tailwinds of significantly lower mortgage rates. Existing Home Sales and Homebuilder Sentiment each beat estimates as well.
• As expected, for the second time this decade, the Federal Reserve lowered benchmark interest rates in response to signs of slowing global economic growth and weakening inflation expectations.
• Strong performance from the REIT and Homebuilding sector wasn't enough to keep the major averages in the green. The S&P 500 and Nasdaq each snapped a three-week streak of gains.
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Between the Federal Reserve meeting, a jam-packed week of housing data, "quadruple witching," and last weekend's major disruption to Saudi Arabia's oil supply, the last official week of summer had all the potential for some climatic fireworks. Throw in the unexpected and historic volatility in the critical short-term repurchase market and all things considered, it was a remarkably tame week for major US equity market benchmarks, which finished the week modestly lower but remain within shouting distance of new all-time highs. The S&P 500 ETF (SPY) and Nasdaq ETF (QQQ) declined by 0.6% and 0.9%, respectively, snapping their three-week streak of gains as strong performance from the REIT and homebuilding sector wasn't enough to pull the major averages into the green.

For the second time this decade, the Federal Reserve lowered benchmark interest rates in response to signs of slowing global economic growth and weakening inflation expectations. US equity and bond markets reacted favorably to the policy announcement in which eight of the ten voting members agreed to lower rates by at least a quarter percentage point. An indication that investors interpreted the Fed commentary as quite "dovish," the 10-year Treasury yield pulled back by 15 basis points on the week, helping to drive outperformance in the yield-oriented segments of the equity market. The broad-based REIT ETFs (VNQ and IYR) jumped by more than 2% on the week, pushing their 2019 total returns back above 25%.

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