Editor’s note: The markets and our Chaikin Analytics offices will be closed Monday, September 4, for Labor Day. As a result, we won’t publish our Chaikin PowerFeed e-letter that day. Expect to receive your next issue on Tuesday, September 5. Enjoy the holiday.
We all know technology stocks are soaring this year…
The tech-heavy Nasdaq Composite Index is up about 35% in 2023. That’s a massive eight-month performance.
But other parts of the market are doing just as well – if not better…
In fact, the Power Gauge expects an opportunity in one better-performing subsector to continue. And even if you’re a regular Chaikin PowerFeed reader, it should surprise you…
The mainstream media would lead you to believe that everything is going against this subsector today. Or at least, it seems like this subsector is facing a huge financial obstacle.
Despite that, this subsector is now No. 2 in terms of the Power Bar ratio – right behind a tech-focused subsector. And not surprisingly, the Power Gauge rates it as “very bullish”…
The second-best subsector in the Power Gauge today is homebuilding. Our one-of-a-kind system measures this subsector using the SPDR S&P Homebuilders Fund (XHB).
Right now, 22 of the 34 rated stocks in XHB are “bullish” or better. And none are “bearish” or worse.
Even better, XHB is in a big uptrend this year. Take a look…
Since the start of 2023, XHB is up about 37%. That’s far better than the benchmark S&P 500 Index’s roughly 18% gain. And it’s slightly ahead of the tech-heavy Nasdaq as well.
You’ll also notice that the Power Gauge spotted this trend early…
The system first flashed “bullish” on XHB back in November 2022. And the exchange-traded fund has consistently earned a “bullish” or better rating since last December.
Now, I understand if that surprises you…
You’ve probably seen in the mainstream media that the 30-year mortgage rate just reached its highest level since 2001. Today, this rate is at roughly 7.2%.
You might think an extreme like that would stall out homebuilders. After all, soaring interest rates make home purchases more expensive.
The median home price in the U.S. is roughly $416,000 today. And at current rates, we’re talking about a huge payment spread…
Interest rates were around 2.8% in 2021. Assuming the buyer put roughly 15% down, the monthly payment on the median home would’ve been around $1,429 back then (before taxes and fees).
Now, the same home would cost a borrower with similar credit $2,383 per month. That’s a 67% increase in just two years!
Even though monthly payments are a lot more expensive, housing demand is still high. And the Federal Reserve’s preferred measure of new homes (called “months’ supply”) is falling.
In fact, months’ supply peaked in July 2022 at about 10. That means that if everyone stopped building and sales stayed the same, it would take roughly 10 months to exhaust the supply of new homes on the market.
Today, that number has dropped back down to roughly seven months.
Meanwhile, so-called “new housing starts” are also above where they were in July 2022.
That combination tells us the housing market is tightening.
So it might seem crazy at first. But the recipe is simple…
Americans still need homes. And they’re still buying despite 30-year-high mortgage rates.
Homebuilders are rushing to meet that demand. And as long as demand holds, we can expect this unusual subsector to keep soaring.
The Power Gauge realizes that. That’s why it remains “very bullish” on this opportunity today.
Good investing,
Vic Lederman
