Pushed-Out Rate-Cut Expectations Prompt Our Exit From This Holding
The trade builds back our cash position, bringing more flexibility as the market recalibrates expectations.
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| Symbo | Transaction Type | # Shares Traded | Recent Price $ | Shares Owned After Trade | % Portfolio |
|---|---|---|---|---|---|
BLDR | Sell | 1,055 | 142 | 0 | 0 |
After you receive this Alert, we will sell 1,055 shares of Builders FirstSource BLDR at or near $142. The trade will close out the portfolio’s position in BLDR shares, one that will have returned a loss of ~ 7.5%.
We are making this move on the heels of what can only be described as a much stronger-than-expected December Employment Report than the market was expecting, which builds on recent inflation data and pushes the timing out further for the Fed’s next rate cut. In our view, this means the path to lower mortgage rates is also pushed out, and as we discussed when we downgraded BLDR shares to a Four rating, it increases the odds these shares are dead money for at least the next several months.
Two other factors factor into our thinking — after delivering 100 basis points in rate cuts, the Fed is also likely to take a wait-and-see approach with Trump White House policies to assess the potential impact on inflation. Remember, the recently reconstituted FOMC leans more hawkish than dovish. Second, if upcoming inflation data continue to move in an upward trajectory or remain sticky near recent levels, we could also start to hear the potential need for the Fed to contemplate a rate hike, especially if upcoming inflation data continues to move on an upward trajectory.
That along with the likelihood that next week’s inflation numbers will further reinforce rates being higher for even longer than previously expected is leading us to fully exit the portfolio’s Builders FirstSource position and limit the loss on BLDR rather than slowly reduce our exposure and risk further losses.
As we make this trade, we will put BLDR shares in the Bullpen for reconsideration later this year. We will also see the portfolio’s cash position climb back to more than 11%, which means added firepower that we can opportunistically use once the dust settles from this latest market recalibration.
(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)
At the time of publication, TheStreet Pro Portfolio was long BLDR.
