Wall St. Week Ahead: Lower rates could boost housing stocks, but risks remain
By Evan Sully NEW YORK (Reuters) - Lower U.S. interest rates could help support outperforming U.S.
By Evan Sully
NEW YORK (Reuters) - Lower U.S. interest rates could help support outperforming U.S. homebuilder stocks, even as they raise worries about the economy, while a bonanza of industry data and Federal Reserve speakers next week are likely to help shape the outlook.
After underperforming in 2018, the PHLX Housing Index <.HGX> is up about 30% for the year so far, roughly double the year-to-date gain of the benchmark S&P 500 index <.SPX>.
Mortgage rates have been declining with U.S. Treasury debt yields, and the outlook for interest rates suggests further easing after the Federal Reserve lowered rates last month and indicated it could cut again this year, depending on data.
This week, U.S. 30-year Treasury yields fell to a record low below 2%, while benchmark 10-year yields declined to a three-year trough as trade tensions linger and global economic growth continues to slow.
The 30-year fixed mortgage rate has dropped to 3.60% from a peak of 4.94% in November, according to mortgage finance agency Freddie Mac. Mortgage rates are often tied to the benchmark 10-year Treasury yield.
Strategists said that could bode well for homebuilders and the housing market, which has been struggling because of land and labour shortages.
A report on Friday showed U.S. homebuilding fell for a third straight month in July amid a steep decline in the construction of multifamily housing units, even as the data provided a positive sign for housing: a jump in permits to a seven-month high.
Next week, the U.S. Commerce Department will release data on July new home sales.
Housing and homebuilding stocks should continue to do well as long as rates remain low, but the potential for slower demand is a risk, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
"Lower interest rates lead to lower mortgage rates (which) lead to increased demand for homebuilders," he said. "You counter that with potential concerns that, if a recession is coming, even if rates are at historically low levels, demand for everything is going to be somewhat mitigated."
Eric Marshall, portfolio manager at Hodges Capital Management in Dallas, has seen relatively good traction in housing even with the turbulent markets. Lower rates are a plus, he said, along with an unemployment rate at its lowest level in years.
"Consumer savings have come up, household formation continues to grow faster than the supply of housing," Marshall said. "And I think all of those things coming together make for a more stable environment for the publicly traded housing stocks."
Recent results from some top homebuilders were mostly stronger than analysts expected, but some forecasts disappointed investors, underlining persisting problems in the housing market.
Last month, PulteGroup Inc
Multiples for some of the homebuilder stocks have jumped this year, but many remain below long-term averages. The S&P 500 homebuilding index <.SPLRCHOME>, which includes PulteGroup, D.R. Horton
Wedbush analysts in a research note on Thursday said that builders have been reducing square footages as mortgage rates have declined, which has addressed affordability issues. The firm has a bullish bias on homebuilder shares, with an "outperform" rating on William Lyon Homes
Investors will pay close attention to comments from Fed Chairman Jerome Powell, who is set to give a speech on rates and policy at the annual Jackson Hole, Wyoming, policy symposium.
"The fact that the Fed has moved to a more dovish position suggests that those rates should remain relatively low compared to what ... we saw in late 2018," said Robert Dietz, chief economist for the National Association of Home Builders.
(Reporting by Evan Sully; additional reporting by Caroline Valetkevitch; editing by Alden Bentley and Jonathan Oatis)
This story has not been edited by Firstpost staff and is generated by auto-feed.
By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States
BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.