Fed rate cuts could boost this season’s winning trade: Tom Lee
One of Wall Street’s reliable seasonal trends is about to bloom, according to Fundstrat, and this year there are solid fundamentals to fuel the growth. Tom Lee, Fundstrat’s head of research, said in an October 17 note to clients that the firm is undertaking a six-month “tactical weight gain” in the homebuilding sector. . The six-month period is based on a strong seasonal pattern, with home builders trending upward from late October to late April. According to Fundstrat, since 1999, the group has posted an average gain 18.7% during the “golden six months” and an average decline of 2.3% outside of that period. While the reasons for this historical trend remain unclear, Lee said, the fact that it now coincides with the Federal Reserve’s interest rate cut cycle will send homebuilder stocks more supported. “The fundamental backdrop for homebuilders over the next six months is very attractive,” Lee said. “The Fed is cutting interest rates at a time when the US housing market is in recession. Therefore, revenue and earnings have growth potential.” Industry exchange-traded funds highlighted by Lee include iShares US Home Construction ETF (ITB), SPDR S&P Homebuilders ETF (XHB) and Invesco Building & Construction ETF (PKB). The Invesco fund is the best performer of the three so far this year, up nearly 31% and outpacing the S&P 500. Shares of PKB YTD Mountain Homebuilder have been strong this year.
