May 20, 2025
We pointed out potential bullish pivot points for Semiconductors and Mag7 stocks in our last Tactical column on May 6th. We are pleased to say both cohorts continue to act well and bullish reversals are progressing. We now turn our attention to an important bellwether theme for the US Consumer, housing.
Our chief concern for the current bullish reversal in equities is the potential for inflation concerns to choke off access to credit due to rising rates and affordability concerns for the average consumer. The housing market is a huge pivot for the economy, so keeping tabs on home related stocks and industries will show us how investors are discounting the cross currents of optimism on trade resolution and inflationary concerns from tariff related price increases.
Rates need to Stay Contained
Mortgage rates are a key pivot for the housing market. At present the “cost of money” is high and while home prices are consolidating, there has been no corresponding downside retracement on price to offer relief for home buyers. Because of this, we think the chart of the US 10yr Yield (below) should be front and center. We don’t want to see the 10yr Yield moving above 4.7%, and recently, we haven’t seen positive catalysts not housing unless Yields have moved below 4%.
Home Builders Have Lagged as the Bullish Reversal Develops
The SPDR S&P Homebuilders ETF (chart below) is a useful proxy for the broad housing market as it encompasses homebuilders across large, mid and small cap. tiers. It also offers exposure to a cross section of builders, building products and home improvement retail stocks that make up the stock level eco-system around the housing market. These stocks are a bellwether for the labor market as construction is a large marginal employer in the US economy, as well as for inflation as lower rates are key to affordability and profitability. We think the $113-114 level is key for signaling material bullish reversal at the index level. We think that only becomes likely if rates begin moving lower.
Conclusion
The fact that the stocks within the homebuilding space are being faded by investors is a sign of concern amidst a general level of optimism around global trade resolution. We think a housing market restart is key to a sustained expansionary cycle from here. So far the price action is giving us pause and remains one of our chief concerns for the equity market despite recent reflation.
Data sourced from Factset Research Systems Inc.
