Economic growth will accelerate to the upside and that generally helps housing, expert says

Key Concepts

• Housing Sector Rebound: Anticipated recovery in the housing market, particularly home builders, after a challenging two-year period.
• Economic Sensitivity: Focus on sectors that are highly responsive to economic growth, like housing, financials, and small caps.
• Rate of Change in Earnings Growth: The idea that slower earnings growth in high-performing sectors (like tech) can lead to corrections, while faster growth in undervalued sectors can drive returns.
• Sector Rotation: Shifting investment focus from one sector to another based on economic conditions and growth potential.
• ITB ETF: An Exchange Traded Fund focused on the U.S. Home Construction industry.
• Air Pocket: A predicted temporary downturn or correction in the market, specifically within the tech sector.

Housing Sector Outlook & Investment Strategy

Eddie Ghabour, Co-founder and CEO of Key Advisers Wealth Management, expresses a bullish outlook on the housing sector for 2026, believing the probability of a third consecutive bad year for home builders is low. He attributes this optimism to anticipated economic growth and the current administration’s commitment to a strong housing market, recognizing its importance to the macro economy. Ghabour states, “We really think economic growth is going to accelerate to the upside, and that generally helps housing.” He emphasizes the administration’s reliability in fulfilling its stated goals, further bolstering his confidence.

Investment Vehicles: ETFs vs. Individual Stocks

When discussing investment strategies, Ghabour differentiates between investing in the iShares U.S. Home Construction ETF (ITB) and individual home builder stocks. He suggests that the ITB ETF, which includes top holdings like D.R. Horton, offers a more prudent, risk-adjusted approach for most clients, while still providing “handsome returns.” However, he acknowledges the potential for significant gains in individual stocks, citing Hovnanian’s 26% month-to-date increase as an example. The choice, he explains, depends on an investor’s individual risk tolerance.

Market Expectations for 2024: A Tale of Two Stories

Ghabour predicts a year of contrasting market dynamics, describing it as “a tale of two stories.” He anticipates a potential “air pocket” or correction in the technology sector during the late first quarter, driven by a slowdown in the rate of change of earnings growth. He clarifies that this isn’t a negative outlook on technology overall – “Technology is, bull market is intact” – but rather a recognition that the high expectations already priced into tech stocks make them vulnerable.

Sector Rotation & Economic Sensitivity

He advocates for a sector rotation strategy, shifting focus towards economically-sensitive areas like small caps, financials, and home builders. He explains that these sectors have a lower earnings base, meaning the rate of change in their growth is likely to accelerate, mathematically favoring their performance. This concept is central to his investment thesis. He states, “When you look at small caps and financials and home builders, the bar’s set so low that the rate of change on their growth is going to accelerate.”

Tech Sector & Alphabet (Google) Performance

While anticipating a potential correction in tech, Ghabour acknowledges the sector’s overall bullish trend. He highlights Alphabet (Google) as a notable example, noting its potential to close at a $4 trillion market cap, currently trading around $331 per share. This observation, while presented with a degree of levity (“LET’S JUST CUE THE CONFETTI FOR…”), underscores the continued strength of certain tech giants.

Data & Statistics

• Hovnanian: Up 26% month-to-date.
• Alphabet (Google): Currently trading around $331, with potential to reach a $4 trillion market cap.
• D.R. Horton: A top holding within the ITB ETF.
• Mortgage Rates: Previously around 7%, now shifting downwards (implied).

Logical Connections

The discussion flows logically from an overall positive outlook on the housing sector to a more nuanced view of the broader market. Ghabour connects the anticipated economic growth and government policies to the potential rebound in housing. He then expands this analysis to the entire market, identifying the risks in the tech sector and advocating for a sector rotation strategy based on the principle of rate of change in earnings growth. The examples of Hovnanian and Alphabet serve to illustrate the potential gains and current valuations within specific sectors.

Conclusion

Eddie Ghabour presents a compelling case for a strategic investment in the housing sector, driven by anticipated economic growth and supportive government policies. He cautions against overexposure to the tech sector due to potentially slowing earnings growth and advocates for a sector rotation strategy focused on economically-sensitive areas poised for accelerated growth. His analysis emphasizes the importance of understanding the rate of change in earnings as a key driver of investment performance.