By Michael McKeown, CFA, CPA - Chief Investment Officer
The summer doldrums are not here for investors. A few stories and charts tell the big picture about what is moving markets.
We said it before and we’ll say it again - housing is back. After building too many houses in the 2000s and not enough in the early 2010s, we are almost back to the long-term average for new home sales (see white dash lined below). April’s data came in at a seasonally adjusted annual rate of 619,000, which is the highest since January 2008. Existing home sales have long since recovered, but new homes being built creates much more economic production.
Oil prices nearly doubled from just three months ago. In February, crude oil hit $26/barrel and tagged $49/barrel this month. As oil goes, so goes gasoline prices at the pump. In Cleveland, average gas prices bottomed at $1.628 and now stand at $2.363. The tax cut consumers received at the pump went away somewhat, but consumer sales (excluding building materials, autos, gas, and food) were up 3.6% over the past year, which is a solid pace of growth for this cycle.
Often people talk about the market without digging into the next layer of description, sectors. Even within sectors there is so much diversity in businesses, regulations, and, of course, value! Below we look at the history of price to earnings (P/E) ratios across sectors as a crude measure of value. This gives a base measure of what is priced at a premium or discount compared to its own history and the market. As a point of reference, the global market P/E is at 17 today. Investors are clearly pricing in positive prospsects for the energy sector, which sports the highest P/E ratio of 25. This is followed by consumer staples (perceived to be ‘safer,’ perhaps) and healthcare. On the low end are financials at a 12 P/E ratio, which many believe will turn into more of a utility because of the increased regulation, low interest rates, and lack of growth. Ironically, the second cheapest sector is utilities at 15.5.
Between housing, oil, and value differences across sectors, there are plenty of themes to grab investors’ attention.
This material is based on public information as of the specified date, and may be stale thereafter. Aurum Wealth Management Group and/or Aurum Advisory Services has no obligation to provide updated information on the securities or information mentioned herein. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates