One of Wall Street’s reliable seasonal trends is about to come to flower, and this year there are solid fundamentals to power a rally, according to Fundstrat. Tom Lee, Fundstrat’s head of research, said in an Oct. 17 note to clients that the firm is opening a six-month “tactical overweight” on the homebuilding sector. The six-month timeline counts on a strong seasonal pattern where homebuilders tend to rally from late October to late April. Since 1999, the group scores an average gain of 18.7% during the “golden six months” and an average decline of 2.3% outside that period, according to Fundstrat. While the reason for the historical trend is not clear, the fact that it currently coincides with a rate-cutting cycle for the Federal Reserve should lend homebuilders’ stocks even more support, Lee said. “The fundamental backdrop for homebuilders in the next 6 months is compelling,” Lee said. “The Fed is cutting interest rates, at a time when U.S. housing has been in a recession. Thus, there is upside potential for revenues and earnings.” The sector exchange-traded funds highlighted by Lee include the iShares U.S. Home Construction ETF (ITB) , the SPDR S & P Homebuilders ETF (XHB) and the Invesco Building & Construction ETF (PKB) . The Invesco fund has been the best performer of the three so far this year, up nearly 31% and outpacing the S & P 500. PKB YTD mountain Homebuilder stocks have already rallied sharply this year.
