Mortgage Pressures Ease, 3 Stocks to Rally on Lower Rates

Everyone is talking about the potential for the Federal Reserve to cut rates in the United States, an event that has the entire stock market trading into new all-time highs, especially the names in the technology sector that make up most of the S&P 500 index today.

However, experienced investors know to look away from what is hot and crowded and follow the dominoes back to new alpha opportunities.

This is where the mortgage market, as part of the real estate sector, comes into play. You’ve probably heard people say they’re hesitant to buy a home, and others mention they can’t get close to their asking price when trying to sell.

Both sides of the equation, buyers and sellers, are stuck right now. This is why housing inventory has reached levels roughly 50% above last year’s, and that has kept demand for mortgages at a low level.

However, as expectations for lower interest rates emerge, mortgage rates have already taken a head start on this theme, having decreased from 6.8% to below 6.6% over the past month alone. If this trend continues and accelerates with the Fed decision, stocks like PulteGroup Inc. (NYSE: PHM), SoFi Technologies Inc. (NASDAQ: SOFI), and Rocket Companies Inc. (NYSE: RKT) could bring a new bull run to your portfolio.

Homebuilding Is Making a Comeback

Over the past quarter, the SPDR S&P Homebuilders ETF (NYSEARCA: XHB) has outperformed the broader S&P 500 index by over 16%, not an easy achievement whatsoever, but a clear sign for retail investors to start taking into consideration when it comes to where money is interested and where momentum is starting to heat up.

One reason for this preference for homebuilders is the lower mortgage rates, which could decrease even further as the Fed finally acts, making homebuilders one of the first stocks to benefit from increased demand in home financing. This is why PulteGroup has also seen some recent optimism from Wall Street analysts as well.

Even though the consensus view is still a Moderate Buy valuing PulteGroup at $136.5 per share (3% below today’s prices), the momentum and fundamental backdrop in homebuilders made some analysts rethink this view. Such as Sam Reid from Wells Fargo & Co., with his Overweight rating and $150 per share valuation, implying 7% upside instead.

This optimism didn’t stop with this new rating, as the market is now comfortable with paying a premium to access PulteGroup’s future earnings growth. Because the stock now trades at a price-to-earnings (P/E) ratio of 10.5x, above the homebuilder’s industry average of 8.5x, it can be safe to assume that markets have higher expectations for this company.

SoFi Is the Premium Stock in Lending

This company caters to the new generation of borrowers, making mortgage and other credit financing easier and slightly more accessible (cost-wise) through technology. That said, just as PulteGroup, SoFi commands a massive premium over the rest of the financing industry.

With its 53.3x P/E, SoFi is head and shoulders above the current 17.1x average, and this lower interest rate theme justifies that current view for the stock and its future demand potential. More than just the rate cut narrative, Wall Street analysts have laid the foundation for higher valuations in this name as well.

The consensus forecast for earnings per share (EPS) indicates that SoFi may report 12 cents in EPS by the second quarter of 2026. If these forecasts become a reality, it would mean a 50% increase from today’s reported EPS of 8 cents, and as most investors know, where EPS growth goes, so does the stock price.

Knowing how well this company is set up now, it shouldn’t be surprising for investors to notice a 6% decrease in SoFi’s short interest over the past month. This is a clear sign of bearish capitulation as short sellers realize the odds are no longer in their favor.

Rocket Companies Reaches Uncharted Territory

With this recent optimism and momentum in the homebuilding space, it is clear (as seen in SoFi’s example) that the mortgage financing industry is also going to benefit from this backdrop. That is exactly why Rocket Companies' stock has reached a new all-time high price of just over $20 per share, after a quarterly rally of 58.75%.

That momentum will unlikely slow down anytime soon, as the setup is similar to SoFi’s. However, the one added benefit in Rocket Companies is that this is a much larger company trading for $42.4 billion in market capitalization (compared to SoFi’s $29.6 billion), meaning chances are high that institutions will be chasing this one.

And that they have, investors can note $429 million worth of buying in the past quarter alone, with those from Boston Partners leading the way with a 6.2% increase in their holdings to net a $206.6 million position today. Like SoFi, Rocket Companies is expected to report 12 cents in EPS by the second quarter of 2026, according to MarketBeat’s consensus.

That means, compared to today’s reported 4 cents in EPS, earnings are set to triple from where they are today, enough to justify this new all-time high and then some in the coming months and quarters, especially if the Fed ends up cutting rates.

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