Over the past several, homebuilders stocks and the related exchange traded funds have been surging. That theme has spelled good news for the Direxion Daily Homebuilders & Supplies 3x Bull Shares (NYSEArca: NAIL), the only triple-leveraged homebuilders ETF.
NAIL tries to deliver triple the daily returns of the Dow Jones U.S. Select Home Construction Index. That index “measures U.S companies in the home construction sector that provide a wide range of products and services related to homebuilding, including home construction and producers, sellers and suppliers of building materials, furnishings and fixtures and also home improvement retailers,” according to Direxion.
The SPDR S&P Homebuilders ETF (NYSEArca: XHB) and the iShares U.S. Home Construction ETF (NYSEArca: ITB), the two benchmark homebuilders exchange traded funds, have recently been building impressive gains.
The PHLX Housing Sector Index (HGX) has finally found its way back to its 2005 highs, which could prove meaningful for ITB and XHB although neither ETF tracks that index. XHB follows the S&P Homebuilders Select Industry Index while ITB tracks the Dow Jones U.S. Select Home Construction Index.
“The sector is rallying off strong fundamental data. Five of the indexes’ top six holdings have reported earnings for the September quarter-end, and all of them—Lennar, NVR, PulteGroup, Home Depot, and D.R. Horton—had earnings per share that either met or exceeded Wall Street expectations,” according to Direxion research.
Those six stocks combine for about half the weight of the index NAIL tries to deliver triple the daily returns of.
Some investors believe President 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.
“There has also been strong economic data post-hurricane season. The Census Bureau reported that U.S. housing starts for Oct. came in at 1.29 million, higher than the 1.185 million economists had expected. It was also a sharp increase from the 1.135 million housing starts in September, though that was likely due to the impact of several damaging hurricanes to the southeast,” according to Direxion.
For more information on the housing market, visit our homebuilders category.