The SPDR S&P Homebuilders ETF (NYSEArca: XHB) and the iShares U.S. Home Construction ETF (NYSEArca: ITB) are up an average of 6.5% to start 2017 and some traders believe more upside is on the way for homebuilders equities and the related exchange traded funds.
The equal-weight XHB mixes stocks such as Tempur Sealy (NYSE: TPX), Williams-Sonoma (NYSE: WSM) and Restoration Hardware (NYSE: RH) with pure play homebuilders such as Lennar (NYSE: LEN) and Toll Brothers (NYSE: TOLL) among others. Conversely, ITB is more of direct play on dedicated hombeuilders stocks.
Some investors believe Trump will follow through on campaign promises to reduce corporate taxes, cut back on regulations and throw billions of dollars into the U.S. economy. However, the expansionary rhetoric has caused the Federal Reserve to tighten its monetary policy, which could push up mortgage rates.
“Miller Tabak managing director and equity strategist Matt Maley said in a recent interview that the ITB, comprised of homebuilders and construction stocks, is close to hitting the $30 mark; that’s been “incredibly important resistance” for the exchange-traded fund,” reports CNBC.
Another related ETF on the move higher is the PowerShares Dynamic Building & Construction Portfolio (NYSEArca: PKB). PKB, on the other hand, takes a larger focus on consumer discretionary and materials companies.
Mortgage rates may continue to rise as investors anticipate a faster economic expansion and inflation from President Trump’s policies. The housing market has been strengthening before the jump in mortgage rates as hiring and healthier finances drove demand.
“The National Association of Home Builders February survey, released Wednesday, posted numbers that fell month over month. While the estimate was for “no change,” wrote The Lindsey Group’s Peter Boockvar, the index fell two points to 65,” according to CNBC.
Traders looking for a bearish play on homebuilders stocks can consider the Direxion Daily Homebuilders & Supplies 3x Bear Shares (NYSEArca: CLAW), which attempts to deliver triple the daily performance of the index XHB tracks.
For more information on the housing sector, visit our homebuilders category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.