Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
It is often said that housing is the backbone of the American economy. The belief is that once an individual or family has a home, they have a measure of economic and personal security. However, numerous factors are involved in building homes affordably. Presently, several developments within the macroeconomic landscape are impacting housing development, potentially creating trading opportunities for those who can react swiftly. The Direxion Daily Homebuilders & Supplies Bull 3X Shares (Ticker: NAIL) is designed for traders wanting to capitalize on these fast-moving trends with amplified exposure.
Traders Hammer Out Gains?
- Tariffs and trade uncertainty
Since taking office, President Donald Trump has displayed a love for tariffs. In February, he announced a 25% tariff on steel and aluminum and the possibility of imposing a 25% tariff on international lumber and wood products, which would take effect in the coming weeks. All the aforementioned materials are essential to homebuilding and would adversely impact the industry due to their rise in costs, which would likely be passed on to the home purchasers.
Any policy shifts, exemptions, or reductions in tariffs could ease cost pressures on homebuilders, potentially leading to a rebound in sector stocks. On the flip side, if additional tariffs are introduced or tensions escalate, bearish opportunities may emerge.
2. Labour uncertainty
President Trump’s deportation of undocumented individuals could also affect the construction industry, as immigrant workers are a core cohort of the homebuilding workforce. With labor availability potentially decreasing, existing workers may need to be compensated more for their time and skills, ultimately pushing up the cost of new homes. As noted in a Pew Research Center memo, undocumented workers make up an estimated 13% of the construction industry.
Any shift in immigration policies or an increase in the available workforce could lower labor costs, benefiting homebuilders. Conversely, further restrictions or labor shortages may squeeze margins, potentially creating short-selling opportunities.
3. Interest rates remain unchanged
While the U.S. Federal Reserve’s lowering of interest rates last year prompted hope of a continued lower rate environment in 2025, Federal Reserve officials recently conveyed the opinion that rates would likely remain unchanged due to an uncertain domestic policy environment and that inflation’s* decline had slowed.
With moderately high interest rates, construction projects could become more expensive, particularly affecting the building material market. Furthermore, with rates remaining unchanged, there may be an adverse impact on the mortgage market, specifically on individuals or families looking to purchase a home.
As noted in a recent National Association of Home Builders (NAHB) memo, constrained housing affordability conditions due to ongoing, elevated interest rates led to a reduction in single-family production to start the new year. As noted in the Jan. 28 to 29 FOMC meeting press release, the Fed maintained the policy rate in the range of 4.25% to 4.50%.
If the Fed signals rate cuts ahead, mortgage demand could rise, boosting homebuilder stocks. If rates stay elevated or climb, homebuilders may struggle, creating potential opportunities for short positions.
4. Declining homebuilder sentiment
The culmination of the various macroeconomic developments has led to a decline in homebuilder sentiment. As the NAHB noted in a recent memo, builder sentiment fell sharply in February over concerns about tariffs, elevated mortgage rates and high housing costs. According to the NAHB/Wells Fargo Housing Market Index (HMI), builder confidence in the market for newly built single-family homes was 42 in February, down five points from January and the lowest level in five months.
The HMI depicts overall builder sentiment toward housing market conditions on a scale ranging between 0 and 100. A higher reading (>50) indicates that most builders feel confident about the current and near-term outlook for housing. Lower readings signify less optimism among builders. As uncertainty about the state of the economy prolongs, it is reasonable to believe builder sentiment could continue to decline.
A rebound in builder sentiment, driven by policy shifts or improved economic conditions, could push homebuilder stocks higher. If sentiment continues to slide, traders may find opportunities in bearish setups or leveraged downside plays.
Trading The Volatility With Direxion’s NAIL ETF
For traders seeking amplified exposure to these short-term catalysts, the Direxion Daily Homebuilders & Supplies Bull 3X Shares (Ticker: NAIL) seeks daily investment results, before fees and expense, of 300% of the performance of the Dow Jones U.S. Select Home Construction Index*. This leveraged ETF allows traders the opportunity to potentially capitalize on U.S. companies in the home construction sector that provide a wide range of products and services related to homebuilding, including home construction and producers, sellers and suppliers of building materials, furnishings and fixtures and also home improvement retailers, but they should be approached with a disciplined risk strategy, as leverage can magnify both gains and losses.
For those who can actively manage risk, NAIL offers a way to take advantage of rapid shifts in the home construction sector. As always, leveraged ETFs are best used for short-term trades and should only be held for a day, and also require close monitoring.
*Definitions and Index Descriptions
An investor should carefully consider the Fund’s investment objective, risks, charges, and expenses before investing. The Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain the Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. The Fund’s prospectus and summary prospectus should be read carefully before investing.
Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
The Dow Jones U.S. Select Home Construction Index is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by Rafferty Asset Management, LLC (“Rafferty”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Dow Jones U.S. Select Home Construction Index.
The Dow Jones U.S. Select Home Construction Index (DJSHMBT) measures U.S companies in the home construction sector that provide a wide range of products and services related to homebuilding, including home construction and producers, sellers and suppliers of building materials, furnishings and fixtures and also home improvement retailers. One cannot directly invest in an index.
Direxion Shares Risks – An investment in the Fund involves risk, including the possible loss of principal. The Fund is non-diversified and includes risks associated with the Fund’s concentrating its investments in a particular industry, sector, or geography which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause prices to fluctuate over time.
Leverage Risk – The Fund obtains investment exposure in excess of its net assets by utilizing leverage and may lose more money in market conditions that are adverse to its investment objective than a fund that does not utilize leverage. A total loss may occur in a single day even if the Index does not lose all of its value. Leverage will also have the effect of magnifying any differences in the Fund’s correlation with the Index and may increase the volatility of the Fund.
Daily Index Correlation Risk – A number of factors may affect the Fund’s ability to achieve a high degree of correlation with the Index and therefore achieve its daily leveraged investment objective. The Fund’s exposure to the Index is impacted by the Index’s movement. Because of this, it is unlikely that the Fund will be perfectly exposed to the Index at the end of each day. The possibility of the Fund being materially over- or under-exposed to the Index increases on days when the Index is volatile near the close of the trading day.
Homebuilding Industry Risk – Companies within the homebuilding industry may be significantly affected by the national, regional and local real estate markets, changes in government spending, zoning laws, interest rates and commodity prices.
Consumer Discretionary Sector Risk — Companies in the consumer discretionary sector are tied closely to the performance of the overall domestic and international economy, including the functioning of the global supply chain, interest rates, competition and consumer confidence.
Industrials Sector Risk — Stock prices of issuers in the industrials sector are affected by supply and demand both for their specific product or service and for industrials sector products in general.
Additional risks of the Fund include Effects of Compounding and Market Volatility Risk, Market Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs Risk), Cash Transaction Risk, and Passive Investment and Index Performance Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.