The market has been trading in a sideways pattern for the last three weeks, with no real direction either way. However, the overarching trend is still clearly down, and the markets look to be ready for a re-test of the lows set in September. Cash is king at this stage of the cycle, and we are sitting on a lot of it. Patience will pay off. This bear market will end; we just can’t be sure of when. The bond market is having the worst performance it has had in over 40 years. A lot of investors thought government bonds were safe. Well, they are safe if you hold them to maturity, but if you own 20-year treasuries you are down almost 34%, and it looks like they have even further to fall. We have very few bonds in our holdings, and the ones we do own are 1-month treasuries which are basically a notch above cash.

Housing starts fell 8.1% in September to a 1.439 million unit annual rate, below the consensus of a 1.47 million unit rate. Although the monthly changes have been switching between positive and negative territory this year, the trend in starts has been decidedly downward. September saw the second lowest level in starts since February 2021, while the three month average was the lowest since October 2020. The near-term outlook for starts is also dour, as builder confidence, which correlates strongly with starts, sank in October to its lowest level since 2012 (excluding the pandemic).

Single-family starts fell 4.7%, down in six of the past seven months, to an 892,000 unit annual rate, the lowest level since May 2020. Multifamily starts fell a larger 13.1% to a 530,000 unit rate, but held onto a broader upward trend. Indeed, the six-month average of multifamily starts hit its highest level since September 1986. Starts fell in three of the four regions, including in the South. There wasn’t a large discernable impact from Hurricane Ian which made landfall in Florida at the end of September. But construction activity will likely be affected in the coming months as rebuilding efforts ramp up.