US housing shares shine as Fed restarts rate cuts

Core Viewpoint - The U.S. Federal Reserve's decision to restart interest rate cuts is expected to benefit housing shares and other interest-rate sensitive sectors, as markets anticipate more monetary easing [1][2]. Group 1: Impact of Federal Reserve's Actions - The Fed lowered its benchmark rate for the first time since December, reducing it by a quarter of a percentage point to the 4-4.25% range, which is aimed at supporting a shaky labor market [1][2]. - The move is anticipated to help small-cap and consumer discretionary shares, with homebuilder stocks likely to benefit from lower mortgage rates and increased economic activity [2][5]. Group 2: Market Performance - The S&P 500 reached record high levels, up over 13% year-to-date, while the small-cap Russell 2000 also posted a record-high close for the first time in nearly four years [2]. - The PHLX Housing index has increased by 15% this quarter, outperforming the S&P 500's over 7% gain, although it still lags behind on a year-to-date basis [3]. Group 3: Notable Stock Performances - Significant gainers in the housing sector this quarter include DR Horton, which is up over 30%, and both KB Home and Toll Brothers, which are up over 20% [4]. - Home improvement retailers Lowe's and Home Depot have also seen increases of about 20% and 13% respectively this quarter [4]. Group 4: Mortgage Rates and Housing Market Conditions - The contract rate on a 30-year fixed-rate mortgage fell to 6.39%, the lowest since early October 2024, with projections suggesting it could approach 6% by year-end [4]. - Despite the positive outlook from lower mortgage rates, the housing market is currently struggling, with single-family homebuilding hitting a near 2-1/2-year low in August [5].