Citigroup downgraded a bunch of homebuilders this morning, July 2nd, from Buy to Hold. They had upgraded a bunch of homebuilders on June 17th, 2005 from Hold to Buy. All I can say to the guys at Citigroup - nice timing.
Wall Street is selling the housing market like Bush is selling the Iraq War. Everything will work out fine. Just give it time. Both are wrong, but as long as a public believes the bullshit the game goes on.
Think about it. Does any homeowner believe the market is going in the toilet? Does any investor believe his portfolio is going to go into the toilet? Absolutely not. And that is what makes the markets work. It is called false optimism. But it hard to untrench this.
you are correct. investors should just ignore the fact that this sector continues to show shitty macroeconomic and builder-specific issues such as huge write-downs, a several year high glut of existing homes for sale, new orders that are significantly lower than last year's, the fact that other sectors and the market as a whole are continually outperforming homebuilders, and that the homebuilders themselves say no recovery is in sight and just CATCH THAT FALLING KNIFE!
if homebuilders and this fund in particular are performing so poorly now when the broader market as a whole is in the black for the year, how are they gonna do when the market has another correction, as it always does? homeowners may not believe the MARKET is going in the toilet, but the fact that for this fund there continues to be more sellers than buyers indicates they think this FUND is going in the toilet...
Analysts many times have a lousy sense of timing, especially with industries experiencing prolonged downturns. Housing and airlines are good examples. I don't know where the bottom is with XHB or individual housing stocks, but I do know the fundamentals are likely to remain poor for another year or two. You just don't get fundamental reversals with huge inventories of new and existing homes. Until the big inventories get burned off, which might take several years, we probably can't get any sustained upturn. Short-term trades are always possible, but long-term buys are just not likely to exist. XHB might very well be a short-term trading buy at $30, but I just can't see a long-term rally under these circumstances.
You may be right - it may only be a trading buy and not a long term buy. But often long term rallies start at such points when people don't see a market ever recovering. Take Nasdaq (QQQQ) for example. The cubes were around $20 in 2002 and they have rallied to $48 today. Not many people expected a long term rally, because all the previous ones had failed. The stocks rally long before fundamentals improve. The homebuilder stocks peaked in 2005 when most people expected housing to be in a secular uptrend for at least a few more years.