Heading into 2025, there was optimism about a “soft landing” for the economy. The belief was that buyers would get lower mortgage rates fueled by lower interest rates. That policy shift would be enough to thaw a relatively frozen market.

However, as the year wore on, the same issues continued to weigh on housing stocks: elevated prices, which kept affordability on the front burner, and a labor market that showed signs of putting the housing market on hold.

Historically, housing upcycles need both cheaper financing and buyers’ confidence in income prospects. Right now, fragile buyer confidence means any slight dip in mortgage rates isn’t large enough.

Against that backdrop, some large-cap builders have a lot of optimism embedded in their valuations. Technical indicators for several leaders already show fading momentum and rising downside risk as markets reassess how quickly demand can reaccelerate.

For investors, this mix of macro uncertainty, stretched sentiment, and deteriorating technicals suggests it may be prudent to lock in gains and rotate out of select homebuilder names before volatility in 2026 tests the sector.

Some Homebuilder Stocks Have Done Well

That doesn’t mean you would be hurting by investing in homebuilder stocks. But it’s been a stock picker’s sector.

For example, the SPDR S&P Homebuilders ETF (NYSEARCA: XHB) was flat in 2025. However, some of the individual holdings in the index did much better.

That said, past performance doesn’t ensure future results. And that’s where the story gets uncertain for homebuilder stocks.

There is a bullish view being bantered about for 2026. This view holds that the provisions of the Trump administration’s One Big Beautiful Bill stimulate the economy and trigger a massive growth cycle.

There’s also a loud chorus of market bears who suggest that inflation will remain sticky and may even move higher with continued interest rates. There’s also growing concern about the labor market and the potential need for more stimulus, which could signal more inflation.

However, there’s also a chance that 2026 could feel a lot like 2025. In that case, a lack of conviction will stall demand. That’s why investors should be wary of some of the largest names in the sector.

Homebuilder Stocks at Risk: D.R. Horton

D.R. Horton Inc. (NYSE: DHI) has been in an uptrend in the last five years. However, recent data show softening momentum and a tilt toward bearish technical signals. For example, in the last year, DHI stock hit a record high, but has been in a downtrend marked by lower highs and lower lows.

The stock has found support at its 200‑day moving average, yet shorter‑term price action has slipped versus the 50‑day, hinting at a maturing trend.

Fundamentals remain solid for now. Analysts expect year‑over‑year (YoY) earnings growth of around 10%. However, sentiment is mixed and even at around 12.5x earnings, DHI stock is trading at a slight premium to its historic average. In an environment where housing demand may not re‑accelerate meaningfully until the back half of 2026, that combination leaves DHI vulnerable to multiple compression and profit‑taking

Homebuilder Stocks at Risk: Lennar

Lennar Corp. (NYSE: LEN) trades near its 52-week low after dropping over 20% in 2025. Much of that sell-off happened in December 2025 when the company’s mixed earnings report couldn’t quell investor uncertainty. LEN stock is trading well below its 50- and 200-day simple moving averages.

From a fundamental perspective, Lennar still faces the same affordability and rate overhang that could slow new orders if the labor market weakens or mortgage spreads stay sticky. Analysts project over 20% YoY earnings growth in the next 12 months, but the stock still trades for a slightly elevated premium.

With the stock already discounting a relatively smooth transition to lower rates and sustained demand, any disappointment in 2026 order growth, backlog conversion, or pricing power could trigger downside. For investors who rode the prior leg of the homebuilder rally, Lennar now appears to be a candidate to sell into strength, as its technicals remain near extended levels.

Homebuilder Stocks at Risk: Pulte Group

PulteGroup Inc. (NYSE: PHM) enters 2026 with an impressive multi‑year performance record, but technical signals are mixed. PHM stock has seemed to find a base of support at its 200-day SMA, but is still trading below its 50-day SMA.

Analysts have a mixed picture, but do suggest that PHM stock could see earnings growth of around 10% in the next 12 months. The stock also appears to have an appropriate valuation.

With the broader housing backdrop still constrained by affordability and macro uncertainty, PulteGroup’s risk‑reward into the first half of 2026 appears skewed to the downside despite an arguably undemanding valuation.

Where My Thesis Could Be Wrong

The main risk to my bearish stance on homebuilder stocks is if housing demand snaps back faster and stronger than expected. For that to happen, inflation would need to cool more decisively, which could prompt the Federal Reserve to deliver quicker rate cuts.

That combination could drive a sharper drop in mortgage rates and reignite buyer interest ahead of the second half of 2026. That plays to the strength of builders like D.R. Horton, Lennar, and PulteGroup that wield significant pricing power and land optionality, enabling them to use incentives, rate buydowns, and product mix shifts to sustain volumes even in a choppy macro environment.​

Technical setups can also flip rapidly: oversold or fear‑driven readings in sentiment and momentum indicators sometimes mark strong buying opportunities rather than breakdowns, especially in structurally undersupplied housing markets. Additionally, if investors conclude that 2026 will merely be a “pause before the next leg up,” these stocks could re-rate higher on any positive surprises in orders, margins, or macroeconomic data, rendering a “sell” call premature.

Homebuilder Stocks Won’t Have a Boring Year

For investors concerned about an uneven 2026, D.R. Horton, Lennar, and PulteGroup now embed meaningful expectations for a smooth housing recovery that may not fully materialize in the first half of the year. Technical indicators across these names point to fading momentum, elevated volatility, and, in some cases, outright bearish signals, all against a backdrop of affordability challenges and slowing earnings growth.

While long‑term structural housing tailwinds remain intact, risk‑aware investors may want to treat recent strength as an opportunity to harvest gains and re‑enter the sector later in 2026 if fundamentals and technicals reset to more attractive levels.​

The miss reflected the company’s strategy of heavy promotion to incentivize buyers as demand remains weak. LEN stock is about 11% below its consensus price target. And a falling interest rate environment is another reason to believe that 2026 may be a better year for homebuilder stocks. 

However, the entire thesis seems to be based on many things going right. Maybe too many. That makes it difficult for me to give Lennar stock a full-throated buy recommendation. It may, however, set up as an interesting trade for opportunistic investors.  

Adapting to a New Normal 

The housing market continues to be under stress due to a lack of supply as well as higher interest rates that make affordability a key issue, particularly for the coveted first-time homebuyer.  

Lennar’s combination of in-house mortgage, title, and insurance, plus targeted Advantage and Advantage Plus programs, is a clear way that the company is attempting to attract and support first-time homebuyers.  

Many of the company’s communities are designed and marketed at accessible entry prices, with structured handholding throughout the process. For Lennar, this was reflected in a pace-over-price approach in which the company intentionally took a hit on profit margins with aggressive incentives.  

In September, Lennar said it would pull back on that strategy, reducing sales volume expectations to prevent more margin erosion. However, as the company’s earnings report showed, it still has some work to do in finding the right balance. 

Will it be More of the Same in 2026?

Lennar is forecasting delivery of about 85,000 homes in fiscal year 2026. That’s about a 3% bump from the fiscal year just ended. The optimism is rooted in hopes that lower interest rates in the first quarter of next year will spur demand in the all-important spring selling season.  

However, industry analysts still forecast that mortgage rates will remain elevated as a weakening labor market has raised concerns about a housing market recovery. Adding to the angst for homebuilders is that the number of existing homes for sale has increased, adding competition for inventory.  

It presents investors with a conundrum. On the surface, LEN stock looks attractive. Even with a price-to-earnings (P/E) ratio of around 11.1, the stock is only slightly overvalued by historical standards. That premium goes away when you consider the stock’s forward P/E ratio of around 9.2x.  

Technical Signals Hint at a Possible Trade 

Lennar’s quarter is a snapshot of the broader industry trends. Having margins and net income down sharply year over year underscores how much has to go right for the bull case to work.  

From a technical standpoint, LEN stock is trading around 112, below its 50-day and not far above its 200-day moving averages, which suggests that momentum has cooled. Still, the longer-term uptrend is not decisively broken. 

However, this does set up a possible “cautious, but not outright crashy” trade scenario. This requires traders to pay a longer-dated bear call spread using the January 2, 2026, options chain.  

There, you’ll see an 118 call trading near $3.90-$4.35, with implied volatility just over 40%. A $125 call is around 1.50, with similar volume. Both have modest but real open interest. The trade is: 

• Sell the 1/2/26 $118 call option 

• Buy the 1/2/26 $125 call option 

This brings in roughly $ 2.40–$ 2.80 in net credit before fees, capping the maximum profit to that credit if LEN stays at or below 118 through expiration. Your risk is the 7‑point width minus the credit received, so around 4.20–4.60 per spread, with breakeven near 120.40–120.80, comfortably above the current price.

A Stock for Traders, Not Conviction Investors

Lennar’s earnings report reinforces how fragile the housing recovery remains. The company is clearly willing to sacrifice margins to maintain volume, and that strategy carries risk if interest rates stay higher for longer or labor market conditions deteriorate.

While LEN stock appears reasonably valued on a forward basis, valuation alone isn’t enough to offset execution and macro uncertainty. For long-term investors, patience is warranted until margins stabilize and demand improves. For traders, however, the stock’s muted momentum and elevated implied volatility may offer a defined-risk opportunity. In this case, Lennar looks less like a buy-and-hold and more like a stock best approached with a tactical mindset.

As of this writing, consensus estimates are clustered around 2.8%. A cooler number would reinforce “soft landing and gradual easing” as the base case. On the other hand, anything meaningfully hotter would revive concerns that inflation is not confined to areas such as shelter and food.

What should investors do? This PCE release is less about calling the exact number and more about having a playbook for both outcomes. If inflation comes in tame, the winners are likely to be rate‑sensitive housing and high‑quality consumer names that benefit from easier financial conditions and a healthier consumer.

If the data runs hot, history suggests that energy producers and select regional banks can offer better protection, as higher long-term yields and persistent inflation expectations reshape sector leadership.

Below are four stocks to buy: two are positioned for a cooling‑inflation setup and two for an economy where inflation is likely to be higher for longer. ​

Stock to Buy on Cooling Inflation: Lennar

A Levered Play on Lower Rates and Housing Demand

Lennar (NYSE: LEN) is a direct way to express a “cooling inflation, easing Fed” thesis because lower PCE over time supports lower mortgage rates, better affordability, and a release of pent‑up housing demand. Management’s latest commentary emphasizes that the long-term need for housing remains intact and that the company is focused on affordability, even-flow production, and cost efficiency to capitalize on demand improvements.

Despite near‑term pressure from high mortgage rates, recent analyses highlight early signs of stabilization as borrowing costs edge down and customers re‑engage, with Lennar choosing discipline on volumes to protect margins rather than chasing every sale. Structural housing shortages and an eventual easing cycle form the core of the bull case, with some estimates calling out double‑digit upside versus fair value if margins normalize with stronger demand.

In a world where a softer PCE accelerates talk of rate cuts, Lennar gives investors a liquid, large‑cap way to lean into a housing upcycle without having to time the exact bottom in mortgage rates.

Stock to Buy on Cooling Inflation: Costco

Inflation‑Weary Consumer, Membership‑Driven Moat

Costco (NASDAQ: COST) is a high-quality way to play cooling inflation because it benefits from a healthier consumer and lower interest rate backdrop, while already proving it can grow through tougher macroeconomic conditions. In its fiscal 2025 Q4 report, Costco delivered 8% year‑over‑year net sales growth of roughly $84.4 billion and net income of about $2.61 billion.

The company also posted comparable sales growth of 5.7% globally and 5.1% in the U.S. This underscores resilient demand even as shoppers stayed cautious on discretionary spend.

The membership model is central to the story: fees climbed to approximately $1.72 billion with global renewal rates above 90%, providing a sticky, high‑margin revenue stream that helps smooth out the macro cycle. Management’s well‑publicized refusal to raise prices on key traffic drivers like the $1.50 hot dog combo and $4.99 rotisserie chicken has reinforced customer loyalty and traffic, even with elevated inflation in recent years.

Costco’s combination of value pricing, membership economics, and growing e‑commerce (digital sales rising at a double‑digit pace) positions it as a core holding for investors who want both defensiveness and upside in a softer‑inflation, Fed‑easing cycle.

Stocks to Buy on Potentially Higher Inflation: ExxonMobil

Cash‑Flow Machine in an Inflationary World

If the PCE print runs hot and the market is forced to price “higher for longer,” ExxonMobil (NYSE: XOM) is a logical beneficiary. Energy producers historically outperform when inflation is elevated, and commodity prices strengthen.

Sector research on energy ETFs shows that during bouts of macro stress and inflation worries in 2025, energy equities often rose on days when the broader market sold off. This highlights their role as a portfolio hedge when real yields and inflation expectations move higher.

ExxonMobil’s edge is its portfolio of advantaged, low‑cost assets, particularly in Guyana and the Permian Basin, which allow it to generate attractive returns even at relatively low oil prices. The company has indicated that more than half of its production comes from these high‑return assets and has outlined a plan to push corporate breakevens toward about $30 per barrel by 2030. That reinforces its ability to produce durable free cash flow through the cycle.

Recent earnings updates also show that, despite some year‑over‑year volatility in segment profits, ExxonMobil continues to post multi‑billion‑dollar quarterly earnings and return significant capital to shareholders via dividends and buybacks.

Stocks to Buy on Potentially Higher Inflation: Huntington Bancshares

Regional Bank with Rate and Growth Leverage

Huntington Bancshares (NASDAQ: HBAN) gives investors a more nuanced way to play a hotter‑inflation or “higher‑for‑longer” rates narrative. Regional banks can benefit from firm long‑term yields and healthy loan growth.

In 2025, Huntington has reported robust loan and deposit trends: second‑quarter results showed average loans up about 8% year over year and deposits up roughly 6%, while maintaining a common equity tier 1 (CET1) capital ratio around 10.5% and improving tangible book value per share in the mid‑teens percentage range.

That growth is being reflected in earnings power. Management recently upgraded its 2025 net interest income guidance to an 8%–9% increase, alongside a raised loan growth outlook of 6%–8%, reflecting confidence that the bank can expand its balance sheet and margins even in a challenging rate environment.

Third‑quarter commentary highlighted an 11% jump in net interest income and rising fee revenue, while credit quality metrics remain solid, with low net charge‑offs and strong reserve coverage.

If a hot PCE reading extends the “higher‑for‑longer” backdrop and supports a steeper curve over time, Huntington’s combination of above‑peer loan growth, expanding franchise in fast‑growing regions like Texas and the Carolinas, and solid capital position makes it an attractive choice for investors comfortable with cyclical financial exposure.

Stocks to Buy Around the PCE Print

Whether the September PCE data confirm cooling inflation or flash a hotter‑than‑expected signal, having defined “cool” and “hot” playbooks: Lennar and Costco on one side, ExxonMobil and Huntington on the other, gives investors a more disciplined way to trade the macro narrative rather than guessing the headline number.