With Earnings Season Approaching, Consider Homebuilder ETFs

The SPDR S&P Homebuilders ETF (NYSEArca: XHB) is up nearly 34% year-to-date and with earnings season looming, homebuilder ETFs have a chance to extend their 2019 paces.

XHB seeks to provide investment results that correspond generally to the total return performance of an index derived from the homebuilding segment of a U.S. total market composite index. In order to track the performance of the S&P Homebuilders Select Industry Index, the fund employs a sampling strategy.

“Raymond James is bullish on the housing sector ahead of earnings. The brokerage firm upgraded KB Home (NYSE:KBH), Lennar Corporation (NYSE:LEN), and Toll Brothers Inc (NYSE:TOL) to ‘outperform’ from ‘market perform,’ saying it expects earnings will ‘reveal decidedly improved housing fundamentals,’ while August housing data signaled “a far more bullish backdrop for homebuilders into year-end,” according to Schaeffer’s Investment Research.

Plenty Of Hope For Homebuilders

Lower mortgage rates could continue to give the housing market a much-needed boost, which could translate to more strength for homebuilders. Rising rates, low affordability and rising homebuilder costs due to tariffs have been thorns in the side for the housing market.

This year, the central bank has been keen to keep interest rates unchanged. In addition, the central bank alluded to possible rate cuts for the rest of 2019. Once again, however, the rising costs of supplies could keep home prices rising, but that could be tempered if the current labor market remains robust

“Lennar, meanwhile, will report earnings the morning of Wednesday, Oct. 2. LEN shares have gained 0.5% today to trade at $55.48. The security rallied sharply after taking a strong bounce off familiar support at its 200-day trendline, and yesterday tagged $56.05 — its highest perch since July 2018,” according to Schaeffer’s.

Leveraged plays on homebuilder stocks include the bullish Direxion Daily Homebuilders and Supplies Bull and Bear 3X Shares (NYSEArca: NAIL), which attempts to deliver triple the daily returns of the Dow Jones U.S. Select Home Construction Index.

Related: New Data Shows Homeowners Are Sitting On Available Home Equity 

“KB Home stock is coming off back-to-back earnings wins, having closed higher the next day in March and June. It looks like options traders are positioning for another post-earnings pop,” notes Schaeffer’s.

KB Home reports earnings after the close of U.S. markets on Sept. 26.

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