The HCM-BuyLine® is positive and has a long way to go before it could turn negative; any pullback should be seen as a buying opportunity. I have been asked about 10 times a day on how the election will affect the markets, and I can tell you, I do not know and neither does anyone else. Turn off the news and let the HCM- BuyLine® do its job. Take the emotion out of the formula because emotions never win in this business. The HCM-BuyLine® is positive just like it was in 2016, and as long as it is positive, we stay long in the market.

Another big question I have been asked is, if Biden wins, what will be the intermediate and long-term effects? Well, one thing I have noticed, especially over the last 20 years of market behavior, is that if the market is not doing well, the President and the sitting Congress usually get replaced in the next election. The market has become a barometer of how well the economy is doing. 

Was the past week’s sell-off the beginning of a more protracted correction? Unlikely. Why? In the last couple editions of  the Wealth Watch, we outlined our short-term concerns that a pullback was likely to take hold, but stressed that it was unlikely to disrupt the underlying bullish uptrend for the market. The market is setting up a powerful chart pattern called the cup and handle (see chart above). When markets break out of the handle, they usually have some power to the upside. We would not expect much over the next two weeks until the election is over, just a back-and-forth market until then.

Housing starts picked up 1.9% in September, its fourth gain in the past five months, to a 1.415 million unit annual rate, but below the consensus of +3.8% to a 1.47 million unit rate. Additionally, the prior two months were revised down by a total of 33,000 units.

The weakness was concentrated in multifamily starts, which fell 14.7%, down for the second straight month. Single-family starts, however, increased 8.5% to a 1.108  million unit rate, the highest level since June 2007. Homebuilders are responding to stronger housing demand amid record low mortgage rates, and as buyer demand reportedly has increased in small cities and suburban areas due to the pandemic.

Building permits, a harbinger of starts to come, rose 5.2% to a 1.553 million unit rate, its highest level since March 2007, again led by single-family. Coupled with the surge in builder confidence in October to a record high level, this suggests that housing starts will continue to trend higher in the coming months.

By region, the Northeast stood out with a 66.7% surge in starts and a 25.8% jump in permits. Overall, housing starts rose in three of the four regions, while permits were up across the board. Longer-term trends continued to improve, with the 12-month averages of both starts and permits moving closer to their previous peaks in March.