How a 31% stock gain is actually a ‘cooling’ trend – Daily News

on Oct10
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October arrived just after a pair of economic headlines highlighted what seemed to be conflicting trends.

“Home prices rose by a record amount.”

“Worst month for stocks since the pandemic’s start.”

Now, before selling your shares and buying investment properties, let me suggest that context is required when deciphering the constant stream of business news alerts.

This apparent split in the fortunes of homeowners and stockholders is based on changes to two widely watched yardsticks — housing’s Case-Shiller price indexes and Wall Street’s Standard & Poor 500-stock index.

Is Wall Street hinting that the pandemic era’s oddly robust appetite for stocks may be souring? What might that mean for housing?

Bad month

Let’s start with the encouraging home-price headline.

The Case-Shiller indexes are issued on the last Tuesday of the month. But don’t forget — and many people do — that what’s reported is an analysis of homebuying data from two months earlier.

So that late September headline summarizing housing conditions was all about July: U.S. prices homes were up 19.7% in a year,  the biggest increase for the benchmark dating to 1975.

Next, think about that worrisome stock market headline. The S&P is reported on a real-time basis each business day, and the bad-month numbers were published minutes after September’s trading ended. The index was down 4.8% from August, the largest tumble since a 12% crash in March 2020 as COVID-19 was first icing the economy.

This calls for the old “apples to apples” lens: For July, the S&P 500 rose 2.3% from June — the sixth month in what proved to be a seven-month upswing that ended in September.

OK, so the timing was off. But that’s not all.

Longer lens

You know Wall Street watchers have short attention spans. Looking 12 months in the past or the future is an exercise usually reserved for days surrounding the year’s end — when people think about the year soon to finish and what the next one might bring.

Meanwhile, many home-price stats, such as Case-Shiller indexes, are frequently discussed in terms of year-over-year performance. I’m not sure exactly why, but such a longer-thinking focus helps smooth out the seasonal swings of homebuying.

What if we used such a longer-term lens on stocks? My spreadsheet tells me that in July — when Case-Shiller’s index set that record for appreciation — the S&P 500 was 34% higher than 12 months earlier. Yes, a far bigger gain than home prices!

And as the infomercial goes, “but wait, there’s more.”

It’s often forgotten that the monthly Case-Shiller indexes reflect 90 days of sales activity. That record-breaking report reflected pricing in May, June, and July.

So the spreadsheet adjusted the S&P 500 one more time. When the stock index is (1) for July (2) as a three-month moving average and (3) with a year-over-year lens, the S&P was rising 37% over the 12 months — or almost twice housing’s upswing.

The same math that often make house-price movements look somewhat calmer, can temper stock’s perceived volatility. Looking at each month’s swings, in the past 10 years stocks have increased in price 71% percent of the time. Looking at the same timeframe — but year-over-year results for a three-month moving average — the S&P 500 has a 92% winning percentage.

That doesn’t guarantee continued upside. Please note that my well-adjusted S&P 500 yardstick was gaining at a 31% annual pace in September. That marked the fifth consecutive month of slowing 12-month appreciation in addition to becoming infamous for that headline-grabbing monthly loss.

You know, I gulped when I first saw that scary news at the end of September. But I’m even more nervous with what my spreadsheet told me: stocks are indeed cooling — as much any 31% gain can signal a chill!

Will home prices be next?

Jonathan Lansner is business columnist for the Southern California News Group. He can be reached at

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