The 10-year Treasury rate reached 2.89% yesterday. Rising rates have put substantial downward pressure on the housing industry. A substantial portion of job growth is derived from housing related jobs including construction, finance, materials, and furnishings. The home builder ETF (XHB) is down over 12% since mid May and is near support at $28.
Given the Federal Reserve’s objective of maintaining job growth until the unemployment rate reaches roughly 6.5%, tapering may be further off than many investors currently expect. It is quite possible that the Federal Reserve will once again provide support to the financial markets and attempt to contain rising interest rates by downplaying tapering. We may soon learn a new financial phrase: “Taper-Lite.”
Interest rate sensitive investments are likely to rebound on Taper-Lite guidance. One way to play this possible scenario is to buy XHB with a stop loss at about $28 per share. On previous moves up from the $28 level, XHB has traded into the low $30s. With a stop at $28, the risk/reward appears attractive.