Dow plunges by almost 400 points as yields reach highest levels since 2024

Welcome to Extreme Investor Network, where we bring you the latest insights and analysis on all things finance. Today, we’re diving into the recent downgrade of five homebuilder stocks by Wedbush.

According to Wedbush, this year has been the most “normal” year for housing trends since 2019. The firm downgraded shares of Century Communities, LGI Homes, and Meritage Homes Corporation to Underperform from Neutral, citing seasonality headwinds. Although they kept their price targets unchanged on DR Horton and Lennar shares, the overall sentiment is a cautious one.

Analyst Jay McCanless notes that 2024 has followed a more typical seasonal pattern for the homebuilding industry, with demand potentially declining into the summer months. This could result in a seasonal stock price decline, especially after the trade window closes in April/May.

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One factor contributing to the bearish outlook is the underperformance of these stocks compared to the iShares U.S. Home Construction ETF since the beginning of the year. Rising land acquisition and development costs, as well as increasing lumber prices, are also concerns for the sector.

While there is anticipation of mortgage rates declining in the second half of the year, McCanless believes that the Federal Reserve’s interest rate cuts may not have a straightforward impact on rates. He points out that mortgage originators may be unwilling to bear prepayment risk without being adequately compensated.

Additionally, McCanless highlights that the spread between the 30-year mortgage and the 10-year Treasury is currently wider than usual to account for refinancing risk. This indicates a level of caution and complexity in the current market environment.

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At Extreme Investor Network, we strive to provide our readers with unique insights and in-depth analysis to help them navigate the complex world of finance. Stay tuned for more updates and expert opinions on the latest market trends and investment opportunities.

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