‘Mild Recession’ To Hit Homebuilders, Auto Stocks In Second Half Of 2024, Analyst Says

Equity markets have been in retreat so far in 2024 as investors take profits following the strong run in the fourth quarter. Sentiment has been driven by concerns that an economic slowdown could hit corporate earnings in the coming quarters.

On Wednesday, early index futures trading appeared to indicate a flat market open following two days of losses for the S&P 500. The SPDR S&P 500 ETF (NYSE:SPY), an exchange traded fund that tracks the senior index, was up 0.1% in pre-market trade, while the Invesco QQQ Trust (NYSE:QQQ), which tracks stocks on the NASDAQ 100, was up 0.2% following a two-day loss of 1.7%.

Since late October, risk sentiment has been riding high, with many stock indexes trading close to record highs.

But niggling doubts about whether the U.S. economy can avoid a recession in 2024 surfaced earlier this week following purchasing manager data that showed that activity in the manufacturing sector had slowed further during December.

Nomura Sees Recession In Second Half Of 2024

Analysts at investment bank Nomura believe the U.S. economy will continue to shrink and be in a “mild recession” in the second half of the year, with tight financial conditions weighing on cyclical sectors such as housebuilders and consumer discretionary items such as automobiles.

“We do not see a clear catalyst for financial stress, but growth downturns can reveal hidden vulnerabilities or ‘break’ otherwise healthy markets,” said Nomura’s lead analyst Aichi Amemiya.

He added: “The past three recessions have coincided with equity sell-offs of 30% or more, and even past mild recessions typically lead to some credit stress.”

Also Read: ‘Rapid Descent’: Mortgage Rates Are Shocking Experts. Is Housing Getting More Affordable?

Homebuilders At Risk

Households and businesses had been well-insulated from rising interest costs so far, the analysts said. But higher borrowing costs will increasingly weigh on consumer spending.

“Mortgage rates remain elevated, and this is likely to lead to renewed weakness in housing markets,” Ameniya said. “Homebuilder sentiment has declined sharply, and we see early signs of a slowdown in single-family construction and new home sales.”

Homebuilders were among the best-performing stocks of 2023 despite higher interest rates forcing average mortgage…