Yahoo Finance Why Is Toll Brothers (TOL) Stock Rocketing Higher Today
What Happened:
Shares of homebuilding company Toll Brothers (NYSE:TOL) jumped 6.5% in the afternoon session after investors seem to be rotating out of large-cap tech winners like NVDA, GOOGL, and MSFT and into smaller cap stocks, with housing stocks as a bright spot in particular.
The rotation was likely sparked by today's inflation report by the Bureau of Labor Statistics. It revealed that CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of June 2024 came in better than expected at 3% year on year (the lowest level in more than three years). The recent inflation prints supported the argument that the Fed will start cutting rates this year as the headline figures moved closer to the 2% target.
Lower rates greatly impact the housing market, which has been tepid in the last year-plus. Specifically, lower rates make homebuying more affordable for consumers because on the same value home, monthly payments are less with a lower mortgage rate.
Before rates began to rise 2022, many potential homebuyers anchored on a home value they could afford--let's say $450,000. As rates rose, the home they could afford with the same monthly payment fell--let's say towards $300,000. However, they weren't very excited about buying a lesser home after having their eyes on higher-value homes. Many chose not to transact. On the other side of the coin, many homeowners with mortgage rates in the 2-3% range chose not to sell because of the prospect of having top buy a new home with a 6-8% mortgage rate attached to it. Demand suffered. Supply suffered. Today's inflation report could be an early sign that the housing market could thaw and even become hot if the Fed cuts rates.
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What is the market telling us:
Toll Brothers's shares are somewhat volatile and over the last year have had 10 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
Toll Brothers is up 20% since the beginning of the year, but at $120.87 per share it is still trading 10.4% below its 52-week high of $134.92 from May 2024. Investors who bought $1,000 worth of Toll Brothers's shares 5 years ago would now be looking at an investment worth $3,332.
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