Today's release of the NAHB Home Builder Index brings back memories of the stir the same report caused last year at this time. Last Summer just as the index was hitting multi year lows and shortly after the market's sharp decline in May, a chart similar to the one below was put out by several different outlets along with the message that on a lagged basis, the S&P 500 closely follows the direction of the NAHB index.
What each of the different firms left out was that the NAHB index has a history dating further back than 1995. In fact, it goes back to 1985. At first we wondered why ten years of history was left out, but as the chart below shows, it was left out because it made the argument look a lot less compelling. Even more important however, is that since last year at this time, the S&P 500 has gone on to gain 23%. Had an investor read one of those incomplete reports, and sold equities, they would have missed out on quite an impressive gain. So next time you are presented with an argument (either or bullish or bearish), make sure you remember this chart and ask yourself if you are really getting the full story.
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