Two sectors are catching the eyes  of us traders this week. House Builders and Banks. The reason we’re so interested (and the reason you should be too) is that they are both sensitive to interest rates. House builders are happy in a low rate environment such as the one we’re in now, while banks are happiest in a high rate environment… such as the one we had back in the 1970s!

Having a range of options at your disposal is extremely useful in today’s markets, where it’s difficult to gauge whether markets will lap up good data or throw it out with the bath water (more on this in our analyst summary)! This afternoon, it looks as if the tide has turned further in favour of the borrowers. A confusing US jobs report likely lacked the clarity needed by the Federal reserve to back up its case for a September rate hike. That doesn’t mean we won’t get one this year – far from it – but a more hawkish message has definitely been tamed by today’s US data (arguably this week’s US data).

While they have all enjoyed somewhat of a recovery, the UK’s house builders and banks have still underperformed relative to many other sectors following the 23 June EU referendum. They could therefore be some of the stocks with the most profit potential for traders. Property-related stocks may find support in a ‘lower for longer’ interest rate environment, and with those ‘-20%’ forecasts for UK house prices evaporating fast, there’s every possibility the rallies we’ve already seen could intensify, taking share prices back to join many UK blue chip peers above pre-Brexit vote levels.

For the banks, sadly, the bulls may have to wait and see what the US economy does between now and November. But that could also mean a better price for those that wait.

If you want to win a stock picking competition, you pick the most volatile stock you can find and hope it moves the right way – if it does, you’ll win the competition but it’s a 50/50. Likewise, US Fed – in its desire to submit to the data – looks to have chosen Non-farm Payrolls. This print is so volatile that, if it goes the ‘right’ way, it can be THE deciding factor in whether a US rate hike is warranted. This happens every month. That in turn means that sentiment towards banks and house builders can change just as often. Stay ahead of the curve with our research offering, which includes structured trade ideas based on the current fundamental and technical market conditions. The trial will give you exactly what our clients get for 2-weeks, after which it simply stops. I’m sure you’ll find it useful.

Have a great weekend!

Sam Springett, Senior Trader (2 Sep)