Fri, October 18, 2024 | 7:50AM ET

New tactical call "Overweight homebuilders" as we enter the Golden 6 months.

Name: FS Insight
Price range: $$$

Tom Lee, CFA ^AC

Head of Research

New tactical call Overweight homebuilders as we enter the Golden 6 months.

VIDEO: We are entering the golden 6 months for homebuilders. The strength of this seasonal trade is surprising.

Please click below to view our Macro Minute (duration: 5:59).

We are initiating a “tactical Overweight” today, recommending homebuilder equities as we enter the “Golden 6 months” for homebuilder stocks. The homebuilder ETFs are ITB XHB PKB

We have recommended this seasonal trade for the past decade:
– buy homebuilders from Oct 20th to Apr 28th
– ignore or avoid homebuilders Apr 29th to Oct 19th
The historical precedent is pretty compelling:
– since 1999
– golden 6 months (10/20 to 4/28): +18.7%
– non-golden (4/29 to 10/19): -2.3%
– this is 25 years of history
In fact, this worked in 2022 and 2023:
– 2022 Golden 6M: +36%
– 2023 Golden 6M: +26%
The fundamental backdrop for homebuilders in the next 6 months is compelling. The Fed is cutting interest rates, at a time when US housing has been in a recession. Thus, there is upside potential for revenues and earnings.
You might wonder what is this rationale for this consistent 6 month trade. We are not entirely clear. If you have a view, please let us know.
The larger backdrop for earnings remains positive. We are still early in 3Q24 earnings season and it has been very good, in our view. The standout is that revenue growth is tracking +5%, consistent with 4% to 6% growth for each of the past 5 quarters.
The reason this is notable is that “core inflation” has fallen like a rock from 7% 3Q22 to 3% 3Q24. The positive surprise is that revenue growth has held steady despite this decline. There are 3 ways to interpret this, and each of the 3 is positive for stocks:
– core inflation did not reflect true inflation in the economy
– S&P 500 revenue growth not correlated to inflation
– S&P 500 companies are “outperforming” inflation
This means that “real” revenue growth is accelerating:
– “real” is S&P 500 revs less core CPI
– 2Q23 –> -3.4%
– 3Q23 –> -1.9%
– 4Q23 –> +0.2%
– NOW –> +2.0%
That is a huge swing and implies that the quality of 3Q24 EPS growth is stronger than a year ago. Perhaps this explains why stocks are so strong in 2024.
We have received criticism for our election updates.
– We are providing updates on election models and
– updates from betting markets
– sector implications stemming from these shifts
Yet, some clients contact us accusing us of rooting for one party or another. These updates reflect changing market expectations. Please do not yell at us if your candidate is behind in the polls or the betting markets. The stock market is making its own decisions.
The latest update from Nate Silver shows Trump now a slight favorite:
– Trump +50.2%
– Kamala +49.5%
– Trump spread: +0.7%
This is a coin flip per the Nate Silver model. And thus, this remains as close to a tie given we have 19 days left.
But what is noteworthy is that Trump was much further behind in the Nate Silver model in 2016 and 2020:
– On Oct 15th, of each year
– 2016: Clinton 86%, Trump 14%
– 2016: Trump -72%
– 2020: Biden 87%, Trump 13%
– 2020: Trump -74%
Trump is +0.7% compared to being behind by <-70% in 2016 and 2020. Thus, this shows that the “tie” in 2024 is quite different than this point in Oct during the last 2 elections.

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Key incoming data October:

~~10/1 9:45 AM ET: Sep F S&P Global Manufacturing PMI~~ Tame
~~10/1 10:00 AM ET: Sep ISM Manufacturing PMI~~ Tame
~~10/1 10:00 AM ET: Aug JOLTS Job Openings~~ Tame
~~10/3 9:45 AM ET: Sep F S&P Global Services PMI~~ Tame
~~10/3 10:00 AM ET: Sep ISM Services PMI~~ Mixed
~~10/3 10:00 AM ET: Aug F Durable Goods Orders~~ Tame
~~10/4 8:30 AM ET: Sep Non-Farm Payrolls~~ Hot
~~10/7 9:00 AM ET: Aug F Manheim Used Vehicle Index~~ Tame
~~10/8 6:00 AM ET: Sep Small Business Optimism Survey~~ Tame
~~10/8 8:30 AM ET: Aug Trade Balance~~ Tame
~~10/9 2:00 PM ET: Sep 18 FOMC Meeting Minutes~~ Dovish
~~10/10 8:30 AM ET: Sep CPI~~ Hot
~~10/11 8:30 AM ET: Sep PPI~~ Tame
~~10/11 10:00 AM ET: Oct P U. Mich. Sentiment and Inflation Expectation~~ Tame
~~10/15 8:30 AM ET: Oct Empire Manufacturing Survey~~ Tame
~~10/15 11:00 AM ET: Sep NY Fed 1yr Inf Exp~~ Tame
~~10/17 8:30 AM ET: Sep Retail Sales Data~~ Tame
~~10/17 8:30 AM ET: Oct Philly Fed Business Outlook~~ Tame
~~10/17 9:00 AM ET: Sep M Manheim Used Vehicle Index~~ Tame
~~10/17 10:00 AM ET: Oct NAHB Housing Market Index~~ Tame
10/17 4:00 PM ET: Aug Net TIC Flows
10/23 10:00 AM ET: Sep Existing Home Sales
10/23 2:00 PM ET: Oct Fed Releases Beige Book
10/24 8:30 AM ET: Sep Chicago Fed Nat Activity Index
10/24 9:45 AM ET: Oct P S&P Global Manufacturing PMI
10/24 9:45 AM ET: Oct P S&P Global Services PMI
10/24 10:00 AM ET: Sep New Home Sales
10/25 10:00 AM ET: Oct F U. Mich. Sentiment and Inflation Expectation
10/25 10:00 AM ET: Aug F Durable Goods Orders
10/28 10:30 AM ET: Oct Dallas Fed Manuf. Activity Survey
10/29 9:00 AM ET: Aug S&P CoreLogic CS home price
10/29 10:00 AM ET: Oct Conference Board Consumer Confidence
10/29 10:00 AM ET: Sep JOLTS Job Openings
10/30 8:30 AM ET: 3Q A 2024 GDP
10/30 10:00 AM ET: 3Q24 Treasury Quarterly Refunding Press Conference
10/31 8:30 AM ET: Sep PCE Deflator
10/31 8:30 AM ET: 3Q Employment Cost Index

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023:

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