U.S. Homebuilding stocks benefit from an economic expansion. Third quarter GDP growth of +3% beat market expectations despite Hurricanes. Growth was broad-based with positive contributions from consumer and business spending, while exports received a boost from softer U.S. Dollar performance. Overall, data reflects a timely impulse as the U.S. recovers from a brief profit recession, albeit with caution as we near the ninth year of a delayed economic expansion.
For homebuilders, growth dynamics support a continued rise in purchasing activity. Further, tight inventory levels and a shortage of construction labor will boost housing inflation.
The SPDR S&P Homebuilders ETF (NYSE:XHB) broke above the $40 resistance level following a year long price consolidation. A series of higher price lows generated a momentum squeeze, which indicates a period of low volatility and a slow build in buying interest. The squeeze relief presents buying opportunities along pull-backs towards the breakout zone. Bullish positioning into year end could extend the uptrend towards 2007 highs around $50.
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