The investment world just woke up to a new reality...
Lower interest rates are coming.
We know this for two reasons...
First, President Donald Trump has been pressuring Federal Reserve Chair Jerome Powell to cut rates. Powell hasn't caved yet. But his term ends in May – which means the president will get his preferred rate policies sooner or later.
Second, the anemic jobs report earlier this month told us that the economy is slowing. That makes a rate cut more likely. And Powell said as much in his comments in Jackson Hole last week.
Lower rates are great for certain investments. And with the writing on the wall, those parts of the market have spiked in recent weeks...
Take homebuilders, for example. The sector just finished one of its best eight-week stretches ever. And according to history, that means homebuilder stocks should continue to soar over the next year.
Let me explain...
A Big Winner When Rates Fall
Not every investment wins when interest rates fall. But for some markets and assets, rates are just about the only thing that matters.
That's how it works in the housing market... When interest rates fall, mortgage rates fall, too. And that greases the wheels for the entire system.
Homebuilder stocks were already rebounding from the tariff-induced sell-off this summer. Then, as the interest-rate outlook began to change, prices soared even higher.
We can see this by looking at the iShares U.S. Home Construction Fund (ITB). It has been ripping higher recently... rallying more than 22% over a recent eight-week stretch. Take a look...
That's a rare stretch of gains. We've only seen eight similar eight-week rallies over the past 15 years. But based on those cases, this kind of quick jump isn't something to worry about... It's a sign of even bigger gains ahead.
Here's what happened after similar setups since 2010...
The past 15 years were great for homebuilders. We were coming out of a housing crisis. And the sector has jumped 16.6% per year since then.
Still, homebuilders have also seen ups and downs. That means you could have done even better in certain moments – like after the setup we just saw...
Similar instances led to 9.5% gains in three months, 11.8% gains in six months, and 38.9% gains over a year. Those are massive returns – and incredible outperformance over a typical buy-and-hold strategy.
What's more, ITB was higher a year later in 7 out of those 8 instances. And the biggest winner was a massive 99% gain in only a year.
The investment world knows lower rates are coming. And low-interest-rate winners are already soaring... But they still have plenty of upside ahead.
In the case of homebuilders, we could see a 39% gain over the next year. So you should be watching these stocks closely right now.
Good investing,
Brett Eversole
Further Reading
The jobs market is showing signs of weakening. And that means folks are expecting an interest-rate cut at the Fed's next meeting in September. But rising inflation is still a threat – and that's putting the Fed in a tough spot for its upcoming interest-rate decisions.
"Palladium has been on a wild ride over the past decade," Brett writes. After a multiyear collapse, palladium recently hit its first 52-week high since 2021. And history shows this is a great time to buy.