When I saw the headline below last Tuesday, it made me angry. Really angry. Check this out.
A “Lehman-like” market disaster could happen this week, analyst warns
The analyst cited negative sentiment triggered by the inversion of the yield curve and how it correlated to 2008. (Here’s the article if you really want to read it.) I think he needs to be held responsible if he’s wrong.
I am sick of hacks trying to make names for themselves with insane and irresponsible Doomsday Calls. Do yourself a favor and ignore them. Instead of becoming fearful with these crazy calls, now is the time to set yourself up for big profits.
I think we’re headed for one of the greatest “melt-ups” (as my colleague Steve Sjuggerud accurately calls it) over the next 12-18 months. The new issue of Investment Opportunities will focus on stocks that I believe will be among the leaders of that rally, and I want to give you a preview of my analysis today.
Already Moving Higher
Let’s dispense quickly with the idea that a recession is around the corner. I shared my full market outlook with you this weekend, but I’ve written before about the inverted yield curve and talked about it at length in a recent MoneyLine podcast (which you can listen to here).
I’ll share one stat with you now: Over the last 40 years, an inverted yield curve has actually been more of a buy signal than a recession indicator. Since 1978, the market has gained 20%+ on average one year after the inversion event when the 10-year Treasury begins to yield less than the two-year Treasury.
Add in the likelihood that the Fed will lower interest rates a couple more times this year, and the odds of a major rally increase.
But even if you’re skeptical, please don’t ignore a tried-and-true buying opportunity that so many other investors are missing amid the panic.
I’m talking about housing stocks. I know. They don’t sound as exciting as next-generation batteries, artificial intelligence, autonomous vehicles, or personalized medicine. But who cares — as long as they can make us money?
Take a look at the iShares U.S. Home Construction ETF (BATS:ITB). It broke above $40 last week for the first time since last June. That is a potentially major breakout going back to levels from 18 months prior. It also broke out of a consolidation phase that lasted about three months.
Those are two bullish technical indicators, and I see more upside ahead with very low housing stock valuations and strong fundamentals.
You may not hear much about strong fundamentals in the current environment, but they’re there. Home Depot (NYSE:HD) is at all-time highs, and Lowe’s (NYSE:LOW) is within about 6% of its peak. Both reported solid sales growth, as did consumer bellwethers Walmart (NYSE:WMT) and Target (NYSE:TGT). This tells us that the consumer is doing pretty well, and so is the housing market.
It’s simple if you ignore the noise and doomsday headlines. Long-term interest rates are down, which means mortgage rates are, too. Any way you slice it, lower mortgage rates boost housing. They make homes more affordable.
We already see potential home buyers on the move. Mortgage applications (the orange line below) have turned sharply higher as rates (the blue line) have fallen.
Note how mortgage originations fell to their lowest level since mid-2014 earlier this year but are back on the upswing — to their highest levels in about two years, in fact. The last time mortgage rates were this low (late 2016), mortgage originations spiked above $600 billion.
What to Buy Now
I look for a similar spike to occur in the next few quarters. A move from $344 billion in the first quarter to over $600 billion would be a massive 75% surge … and would light an even bigger fire under housing stocks.
The opportunity is more than just low rates. There are multiple catalysts to drive housing stocks higher in the coming months, including high employment, consumers’ willingness to spend, still-low valuations, and millennials buying homes as they start families. That last one is especially big and could last for years, as we are in the early stages of the greatest wealth transfer in U.S. history, from the baby boomers to the millennials.
I focus a lot on cutting-edge trends and breakthroughs, like batteries that will change the way we live and communicate. That’s where a lot of the life-changing gains will come from. But I don’t ignore more “traditional” trends like housing when the time is right, like now.
I’ll have my full analysis on housing stocks and at least one related stock recommendation in the new Investment Opportunities issue this Thursday. I wanted to let you know today so you can have them on your radar, too.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of Investment Opportunities and Early Stage Investor. He has dedicated his career to getting investors into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA), +1,044% in Tesla (TSLA), +611% in Liquefied Natural Gas Limited (LNGLY), +324% in Bitcoin Services (BTSC), just to name a few. If you’re interested in making triple-digit gains from the world’s biggest investment trends BEFORE anyone else, click here to learn more about Matt McCall and his investments strategy today.