Fundstrat is anticipating a reliable seasonal trend on Wall Street to emerge, supported by strong fundamentals for a potential rally. In a note dated October 17, Tom Lee, the head of research at Fundstrat, announced that the firm is initiating a “tactical overweight” on the homebuilding sector for the next six months. This decision leverages a historical seasonal pattern where homebuilders have historically rallied from late October to late April. Since 1999, homebuilders have recorded an average gain of 18.7% during these so-called “golden six months,” contrasted with an average decline of 2.3% outside this period, as indicated by Fundstrat’s analysis.
Although the cause of this historical trend remains uncertain, the current alignment with the Federal Reserve’s rate-cutting cycle is expected to provide additional support to homebuilder stocks, according to Lee. He highlighted the compelling fundamental environment for homebuilders over the upcoming six months, noting that the Federal Reserve is reducing interest rates amid a recession in the U.S. housing market, creating potential for increased revenues and earnings.
Lee pointed out several sector exchange-traded funds (ETFs) that are noteworthy, including the iShares U.S. Home Construction ETF (ITB), the SPDR S&P Homebuilders ETF (XHB), and the Invesco Building & Construction ETF (PKB). Among these, the Invesco fund has been the standout performer this year, having increased by nearly 31% and surpassing the S&P 500. Overall, homebuilder stocks have already experienced a significant rally this year.
