The Essential 2025 Rotation Just Started

By Lucas Downey, Editor, TradeSmith Alpha Signals

I’m sure by now you’ve heard the big news…

The greatest investor of all time, Warren Buffett, took a stake in both UnitedHealth Group (UNH), homebuilding stocks D.R. Horton (DHI) and Lennar (LEN), and made several other big trades as he prepares to retire this year.

While UNH has garnered more of the headlines due to the company’s fall from grace this year, I see the homebuilder bets as just as important.

Last month I took the unconventional position to buy the beaten-down homebuilder group.

At the time, there was an oversold setup that couldn’t be ignored.

Today, with Buffett in our corner, we’ll double down on bullish calls for the home construction space.

We’ll look at one ultra-thrust bullish signal that no one is talking about.

Then, using TradeSmith’s best-in-class software, I’ll isolate one name worth adding to your portfolio…

The Homebuilder Rotation Is in Full Swing

ETFs have become super popular with investors. These exchange-traded vehicles have made it easy for traders to gain exposure to just about any asset class or sector.

But it’s important to understand that these funds are baskets of stocks. That means you should understand how those stocks are behaving before buying them.

The reason the SPDR Homebuilders ETF (XHB) hit my radar was simple. The number of stocks in the fund that were above their 200DMA was at a paltry 13% at the end of June.

Fast forward to today, and that number has jumped to 69%... its best level this year:

Now you’ll notice off to the right how breadth expanded massively just days ago.

That’s because XHB jumped an incredible 7.64% in just two days – Tuesday and Wednesday of last week.

The whole group surged in unison as rate cut bets for September rose sharply:

This is significant. If interest rates are slated to fall, it makes total sense that homebuilders would flourish.

When rates fall, that can put downward pressure on mortgage rates… driving demand for new homes.

But what caught my attention was the fact that this level of gain for XHB rarely comes along.

In fact, since 2006 we were able to only find 66 occasions when the ETF jumped 7.6% or more in a two-day period.

Here’s why it’s a massive bull signal.

We went back and isolated all 66 signals to see what happens next. This level of gain forecasts huge returns.

Here’s what happens after XHB jumps 7.6%+ in two trading sessions:

Six months later, the fund climbs 14.6% on average.
12 months later, the ETF jumps 28.8% on average.

Those are great gains, but keep in mind that this calculation counts 2006. That was the height of the housing bubble that ultimately burst in 2008.

Those ugly years put massive downward performance on homebuilding stocks.

If we look at only periods after 2009, returns climb further with:

Six-month average returns of 41.7%
12-month average returns of 70.8%

And for another data point, I added periods after 2020… and the forward returns are even higher:

Those are incredible stats. And if we could achieve a fraction of those historical gains, we’d all be happy.

With Buffett hopping on board, it makes it even more fundamentally attractive.

Now, let’s drill down on one eye-catching XHB holding…

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Two Reasons to Own Williams-Sonoma (WSM) This Fall

When people think of homebuilders, they often think of the actual builders in neighborhoods across America like Toll Brothers (TOL) and D.R. Horton.

But this fund covers home-improvement chains too, like Lowe’s (LOW)… and high-end home products company, Williams-Sonoma.

Williams-Sonoma operates popular brands like Pottery Barn and West Elm. It earned net income of $1.1 billion on sales of $7.7 billion in FY 2025.

It’s a well-run firm that’s also benefited from the rise in homebuilding stocks. The company has gained a striking 24.9% in one month:

That’s a lot of momentum in a short period of time.

Here’s why you don’t want to bet against the stock over the next two months.

Since 1990, we were able to locate 479 instances in which WSM climbed at least 24.9% in 21 trading days.

Here’s what happens next:

One month later, the stock jumps 4.2% on average.
Two months later, gains build to 7.9%.

Throw in the fact that the dividend yield stands at 1.3%, and you’re looking at one solid name over the near term.

But we can add to this wager. Turns out there’s another feather in the bull’s cap.

And that comes down to seasonality.

Using TradeSmith’s Seasonality tool, we can see how WSM has a strong seasonal trend starting right around the corner between September 2 and November 26:

Over the last 15 years, WSM has gone up an average of 9.1% during this time and has been up 80% of the time. The only down years were 2015, 2018, and 2022 – when each year was fraught with broad-based volatility around this time.

Those are great odds if you ask me.

But let’s take it one final step further…

Below is the Quantum Score for WSM. This is a score developed by Jason Bodner and TradeSmith that helps you find the best stocks in the market.

It combines fundamental and technical factors that we’ve found to be the most important qualities for any stock, in any sector, to hold.

The higher the score, the better the stock… And WSM commands a strong 78.3.

Not only that, but we can also see that the Technical and composite score have both climbed over the last few months.

Look, investing is all about stacking the odds in your favor.

This essential rotation play into home builders is stacked with data-driven evidence.

Our signal study showed XHB just fired a bull signal… and TradeSmith’s advanced software tools showed WSM is a solid play for the trend.

It’s yet another example of how we use the data to give you the edge your portfolio needs.

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The Essential 2025 Rotation Just Started