Stock market rallies to new highs while Citigroup upgrade home builder stocks

Home-builder stocks rose Monday (October 1st, 2007) after a Citigroup analyst raised his stock ratings on several of the sector's largest companies on signs the worst may be behind the the housing industry.

Stock markets rallied into record territory yesterday as investors bought back into the banking and housing sectors, a sign that Wall Street could see an end to the summer’s subprime housing woes and a lower risk of recession.

“The market believes that the crisis is over,” said William Rhodes, the chief investment strategist of Rhodes Analytics, a market research firm. “Whatever problems emerged last quarter are last quarter’s problems. They’re over, that’s it, they’re done. So let’s move onto the next thing.”

“We’re beginning to know what we didn’t know a few weeks ago, and with some uncertainty being removed that gives investors a little more confidence to dip their toe into the market,” said Todd Salamone, director of trading at Schaeffer’s Investment Research.

It looks like Wall Street is starting to shake off the credit/mortgage crisis. It will be interesting to see how the next few months play out. Remember, that the sum-prime mortgage markets makes up a very small percentage of total existing mortgages.

With prices down, low mortgage rates, the Federal Reserve actively cutting rates, and so much talk and effort to reform property taxes and insurance the fundamentals are looking much better. Once confidence in the housing market gets better the fence sitters will start buying. We should have a busy winter season.

Contrarian investor - they seek opportunities to profit from situations when the crowd mentality leads to unreasonable valuations for assets, either on the upside or the downside.