Five interesting things that Hodges Capital research analysts discovered this week...
#1 New Tune: Odds of a December rate cut now sit at 58%, down from an 85% probability priced in at the beginning of the month. This shift follows slightly hotter-than-expected economic data and incrementally more hawkish commentary from Powell late last week. (Jefferies)
#2 Low and Slow: Housing starts dipped 3.1% m/m in October to 1,311k, worse than the 1,334k consensus, with a 1k downward revision to September. Regional breadth was mixed. The South (-8.8%, potentially impacted by Hurricane Milton) and Northeast (-32.9%, the smallest market) experienced declines, while the Midwest (+9.4%) and West (+21.1%) posted gains. Single unit starts dropped 6.9% with their inventories at a high 7.6 months of supply, and sales stuck below pre-Covid levels. Multi-units rose 9.6% but remained generally low. (Piper Sandler)
#3 Let's Walk Home: According to a new Pew survey, Americans believe the roads have become more dangerous. 49% of U.S. adults say that people in their local community are driving less safely compared with five years ago. Only 9% say people are driving safer, and 35% see no change. Looking at actual traffic deaths, the roads have indeed become more dangerous. In 2021, the first full year of the pandemic, traffic deaths spiked 17.5% YoY. While deaths have declined over the last three years, they remain 10.0% above pre-pandemic levels (2019). (Hedgeye)
#4 Financials Analysis: In evaluating S&P 500 YTD returns by sector, we observe that two-thirds of the 32% return from Financials were driven by P/E multiple expansion. On a Price/Book basis, large-cap financials have reached 20-year highs, while small-cap financials are trading at their 10-year average. (PSC charts)
#5 Keep On Truckin': According to Cox/Kelley Blue Book, U.S. new vehicle average transaction prices averaged $48,623 in October, up 1.7% YoY, and the highest monthly level since January 2023. Incentive spending in October reached $3,149 per unit, or 6.5% of gross ATPs, the highest level since May 2021 and compared to an average of 10.3% pre-Covid. ATPs for light trucks are about 50% higher than for cars. Light truck share of the market has expanded from 72% in 2019 and will exceed 80% this year. Seasonally, Q4 is the highest quarter of the year for trucks. The increase in light truck share accounts for about one-third of the increase in average market ATPs. (Freedom Capital Markets)
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