Home builder stocks should be rallying in light of Monday's surge in home builder confidence and recent positive earnings reports from Toll Brothers and a Lennar report just this morning that blew away estimates. But they are not as of midday Tuesday. True, the housing starts data from the Commerce Department Tuesday morning was negative, but the decline was led by the South, where heavy rains and flooding washed out the ground into which shovels get put. Here's The Wall Street Journal on what's really going on:

While Federal Reserve officials have been wrestling with whether to tighten monetary policy in recent weeks, the financial markets may have already done much of the work for them.

Stock and bond prices have slumped and the dollar has strengthened. Since Labor Day, the Dow Jones Industrial Average has fallen 1.95%, while the yield on the 10-year U.S. Treasury note has climbed 0.08 percentage point to 1.698% and the WSJ Dollar Index has risen 0.95%. On Monday, the Dow dropped 3.63 points to 18120.17.

Goldman Sachs Group’s gauge of U.S. financial conditions—a closely watched barometer that both reflects economic growth and offers a view of investor expectations of market trends—is at its tightest level since June. The financial-conditions index was at 100.27 Friday, up from 99.86 on Aug. 18. Tighter conditions reflect more difficulty borrowing.

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