Let’s take a look at some of the top stories impacting the markets, including the heightened uncertainty surrounding healthcare legislation, the drop in the NAHB Housing Market Index, and measures being taken by banks to limit exposure to risky counterparties.
By Kris Rosemann
Shares of health insurers and health care providers (XLV) are facing notable selling pressure December 17 after a federal judge in Texas ruled the Affordable Care Act is unconstitutional without the penalty for lack of insurance coverage, which was repealed by Congress last year. The ruling came on the evening of December 14, but it is almost certain to be appealed. The Affordable Care Act has been beleaguered for some time now, and the latest news casts greater uncertainty over the health care space and insurance coverage for millions of Americans.
While not facing regulatory or legislative uncertainty to the extent of the health care space, the housing market (ITB) has been one of great interest and differing viewpoints for many investors of late. The NAHB Housing Market Index, which is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market and was released December 17, fell four points to 56 for the month of December, its lowest mark since May 2015. Key concerns include affordability, as rising home costs are causing home buyers to think twice about pulling the trigger on a house, but a recent easing in the upward trajectory of mortgage rates could help alleviate these apprehensions. According to the Freddie Mac Primary Mortgage Survey, 30-year fixed-rate mortgage rates were at an average of 4.63% for the week ended December 13, the lowest mark in three months.
The housing market may never be able to get away from its cyclical nature, but big banks (KBE) are working to learn from the most recent economic downturn. A recent uptick in more stringent lending standards appears to be the case at many major banks, according to Reuters. Increased rejections of customers with low credit scores, the shuttering of existing subprime borrowing accounts, and a decline in home-equity lines of credit, among other types of loans such as credit cards and commercial real estate, are all pointing to a reduction of risk appetite from banks despite delinquency and default rates remaining near historic lows.
While many big bank leaders continue to point to the health of the US consumer as a reason for ongoing confidence, actions speak louder than words, and clearly some attempts are being made a lowering exposure to those potentially more sensitive to a slowdown in the US economy. Industrial real estate has become a hot button topic for some as it can become increasingly illiquid, even compared to other areas of real estate, in the event of a downturn, and some regional banks (KRE) have reportedly begun tempering exposure to industrial lending. Earlier this month, the flattening yield curve had many investors concerned with the potential for an incoming recession and punished shares of banking entities, but an inverted yield curve may very well be a self-fulfilling prophecy more than anything.
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Kris Rosemann does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.