The 10-year Treasury yield has plummeted below 1% for the first time ever.
Bond prices spiked, sending yields spiraling, as the Federal Reserve cut rates Tuesday and investors fled to safety on the coronavirus outbreak.
Plummeting yields could benefit one corner of the market, according to one trader.
“As rates come down, mortgage rates are going to follow suit, and what that’s going to do is it’s going to cause quite a few of those would-be homebuyers to move off the sidelines and finally pull the trigger,” said Mark Tepper, president of Strategic Wealth Partners.
In an interview Tuesday on CNBC’s “Trading Nation,” Tepper added that a lack of affordable housing and an inventory squeeze could push housing stocks higher as the companies fulfill pent-up demand.
“That’s why I like D.R. Horton,” said Tepper. “They focus on the entry level and move-up markets. They’ve got pricing power because supply is limited. … But, actually, my favorite way to play housing is through Sherwin-Williams. Consumers are becoming more and more price-conscious and the least expensive way to give your home a makeover is through paint. That’s what Sherwin Williams does.”
Sherwin-Williams and D.R. Horton were more than 4% higher as of Tuesday’s closing.
Like Tepper, Miller Tabak chief market strategist Matt Maley sees value in one home improvement DIY stock.
“As [he] said about Sherwin Williams it kind of goes for Home Depot as well. People will be more willing to do home improvement than a major renovation,” Maley said during the same segment.
Maley said the charts support even more gains for the entire ITB home construction ETF.
“They’ve sold off last week in a sharp fashion, bounced off their 200-day moving averages after they became very, very oversold. So these are the types of names that you like to see to get completely washed out and bounce off a key support level — that usually means that their bounce can last a little bit longer,” said Maley.
The ITB ETF, which holds Lowe’s and Home Depot, is 6% above its 200-day moving average. It has not traded below that level since last March.
Disclosure: Strategic Wealth Partners holds SHW.