This winning sector could see even more upside once the Fed starts cutting rates, according to State Street

Published Fri, Mar 29 20247:55 AM EDT

Homebuilding stocks have reached new highs this year, and State Street's Matthew Bartolini sees more upside in store when the Federal Reserve begins cutting rates. "The thesis just comes down to economic resilience that is fueled by a strong labor market and a healthy consumer," said the managing director and head of SPDR Americas research. XHB YTD mountain Homebuilding ETF has surged more than 15% this year. The SPDR S & P Homebuilders ETF (XHB) has rallied nearly 17% year to date and about 70% over the past year. Earlier this month, it closed at records dating back to its inception in 2006. Williams-Sonoma and Installed Building Products have powered those gains, surging about 57% and 42% in 2024, respectively. Carlisle Companies , Builders FirstSource and Toll Brothers have surged about 25% this year. Underpinning the homebuilding thesis is a bet on a strong economy, with Bartolini noting that the sector has outperformed the overall market in the past 18 months and brought stronger earnings-per-share growth. Homebuilding stocks have also benefited from a resilient economy that is led by a healthy labor market, and they stand to gain even more in a Federal Reserve rate-cutting cycle. "If the Fed does cut rates, that is a big bonus, because that should put downward pressure on mortgage rates, unlocking more demand that has been sitting on the sidelines alongside pretty tight supply," he said. Wall Street anticipates three cuts before the end of the year following last week's March Fed meeting , with traders pricing in a roughly 60% chance of easing in June, according to CME Group's FedWatch Tool . XHB 1Y mountain Homebuilders ETF over the last year Classic homebuilder and construction stocks aren't the only members of this so-called housing group poised to benefit. Home furnishing stocks also stand to gain, and they have already benefited from a strong consumer, Bartolini said. "From our vantage point, we see [the] broader homebuilding or housing industry continuing to do well because of the strength in the economy that's supported by a very healthy consumer and a robust labor market," he said.