Falling Yields Fuel Housing Market Demand

Falling Yields Fuel Housing Market Demand

Market Moves

U.S. stocks sold off at the end of an otherwise quiet trading session. Markets remained muted ahead of the Jackson Hole symposium later this week, where Fed officials will deliver speeches on monetary policy. Between tomorrow’s publication of the last Fed meeting minutes and Friday’s speeches, traders seem to be cautious about placing bets.

Bond prices edged higher in the shadow of a nervous stock market, with yields on the 10-year note falling by 0.5% in just the past two weeks. This dynamic has one group of companies, and their stock shares, thinking optimistically about the months ahead. Homebuilders, tracked by ticker symbol SPDR S&P Homebuilders ETF (XHB), have applied for an increased number of building permits as mortgage rates have followed the 10-year note lower. 

The recent acceleration of this dynamic is by no means the first sign of this movement, but considering the time of year, with homebuyers scrambling to make housing decisions, this is a trend that may extend. The chart below displays how the trend in homebuilder stocks has clearly been upward during a downward move in interest rates. The inverse correlation implies that, as one of these trends continues, the other one is likely to continue as well.

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