The stocks of homebuilders and suppliers are soaring after a weak August jobs report raised expectations for the U.S. Federal Reserve to lower interest rates at its Sept. 17 policy meeting.
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The U.S. added just 22,000 jobs in August, well below the 76,500 that economists had forecast. Consequently, the U.S. unemployment rate rose to 4.3% from 4.2% in July. However, the weak jobs data has raised the odds of a September rate cut to 100% from 96.4%. Additionally, the odds of a jumbo 50-basis point rate cut rose to 14.3% from zero.
A majority of futures traders (64%) now expect interest rates in the U.S. to decline by 75 basis points before the end of 2025, up from 45% previously. Following the August labor force survey, bond yields fell, with the 10-year Treasury yield down 0.085 percentage points.
The current set-up is positive for the housing market and has homebuilder stocks such as DR Horton (DHI), Lennar (LEN), and Builders FirstSource (BLDR) marching higher.
Mortgage Rates Drop
Few sectors of the economy are as sensitive to interest rates as housing. And immediately after the August jobs print, the average rate on the 30-year fixed mortgage dropped 16 basis points to 6.29%. That was the biggest one-day decline in more than a year and a major change from May, when the rate on a 30-year fixed mortgage peaked at 7.08%.
The coming interest rate cuts should mean falling mortgage rates for homebuyers and lower borrowing costs for developers, which is positive for both builders and building-supply companies. The stocks of DHI, LEN and BLDR are each up more than 3% on Sept. 5. That’s a big reversal from the last year when the housing market was largely frozen due to high costs and low supply.
Is the SPDR S&P 500 ETF Trust a Buy?
The SPDR S&P 500 exchange-traded fund (SPY) currently has a consensus Moderate Buy rating among 504 Wall Street analysts. That rating is based on 417 Buy, 79 Hold, and eight Sell recommendations issued in the last three months. The average SPY price target of $718.05 implies 11.27% upside from current levels.
