One of Wall Street’s most reliable seasonal trends is about to blossom, and there are strong groundswells for a rally this year, according to Fundstrat. Tom Lee, head of research at Fundstrat, said in an Oct. 17 note to clients that the firm is opening a six-month “tactical overweight” position in the housing sector. The six-month timeline has a strong seasonal pattern, where homebuilders tend to converge from late October to late April. Since 1999, the group has posted 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 unclear, today’s alignment with the Federal Reserve’s rate-cutting cycle should give homebuilder stocks even more upside, Lee said. “The fundamental backdrop for homebuilders over the next 6 months is compelling,” Lee said. “The Fed is cutting interest rates at a time when US housing has been in recession. So the potential for income and earnings is on the rise.” Exchange-traded sector funds highlighted by Lee include the iShares US 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 this year, rising nearly 31% and outperforming the S&P 500. PKB YTD mountain Homebuilder shares are already up this year.
