Analysts on Wall Street are now reflecting on the prospects for the markets, a day after the dramatic interest rate cut by the US Federal Reserve, which sparked strong rallies across the globe. The key question is whether the interest rate tool will be enough to extricate the markets from the crisis they have experienced of late, or whether the rally is merely temporary.
In a report yesterday, "MarketWatch" featured comments from a number of analysts. "While the Fed rate cut will likely help some homeowners with adjustable-rate mortgages that are about to reset, we believe it will have little overall impact on housing fundamentals," wrote Morgan Stanley analyst Robert Stevenson in a report to clients on Wednesday. He said he remains cautious on home-builder stocks "and would look to short the group should it trade meaningfully higher in the absence of further rate cuts."
MarketWatch also said that the number of foreclosure filings had more than doubled in the past year, according to a monthly report released by RealtyTrac. "The jump in foreclosure filings this month might be the beginning of the next wave of increased foreclosure activity, as a large number of sub-prime adjustable-rate loans are beginning to reset," said RealtyTrac CEO James Saccacio.
Stevenson added that without continued rate cuts or a leveraged buyout in the builder sector, he saw few other positive catalysts. Alternately, over a three- to five-year period, he said that likes the stocks, barring a recession, even though "investors will find more attractive entry points over the next few months."
Pali Research analyst Steven East said that, historically, it can be argued that during Fed easing cycles, new-home sales, housing starts and permits increase, while inventory falls. "Thus under this framework, we can make a strong case that an easing by the Fed would signal an impending bottom for the fundamentals of the (home-building) industry." East noted that during the most recent housing boom, activity reached an "irrational high" in many of the markets in which public builders operate. "Consequently, the industry still has to fall more before a leveling and subsequent rebound can occur," he concluded.
Published by Globes [online], Israel business news - www.globes.co.il - on September 20, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007