Fundstrat says one of Wall Street’s reliable seasonal trends is coming to fruition, with solid fundamentals fueling a rebound this year. Tom Lee, head of research at Fundstrat, said in an Oct. 17 note to clients that the firm is conducting a six-month “tactical overweight” position on the residential construction sector. The six-month timeline relies on strong seasonal patterns, with homebuilders tending to rebound from late October to late April. Since 1999, the group has gained an average of 18.7% during the “golden six months” period, while falling an average of 2.3% outside that period, according to Fundstrat. Lee said that while the reasons for the historical trend are unclear, the fact that we are in a rate-cutting cycle by the Federal Reserve should bring more support to homebuilder stocks. “The fundamental backdrop for homebuilders over the next six months is impressive,” Lee said. “The Fed is cutting interest rates as the U.S. housing industry enters a recession. So, there is upside potential for revenue and earnings.” 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 funds so far this year, up nearly 31%, outpacing the S&P 500.
