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Homebuilder ETFs Break Out on Strong Toll Brothers Q2 Results

This article was originally published on ETFTrends.com.

Homebuilder stocks led Tuesday gains with sector-related ETFs breaking above their short-term trend lines after Toll Brothers (TOL) beat second quarter earnings expectations.

On Tuesday, the iShares U.S. Home Construction ETF (ITB) , the largest homebuilder-related ETF, jumped 3.7% and the equally weighted SPDR S&P Homebuilders ETF (XHB) rose 2.6%. Both ITB and XBH broke above their short-term resistance at the 50-day simple moving average.

Fueling the surge in homebuilders, Toll Brothers revealed profits rose 30% in its latest quarter on strong growth in deliveries and ongoing deals with customers, reports Kimberly Chin for the Wall Street Journal.

TOL shares surged 13.8% Tuesday. TOL makes up 4.5% of ITB's underlying holdings and 4.0% of XHB's portfolio.

Toll is one of the country's largest builders of luxury homes. The home construction company benefited from low housing inventory and strong activity among affluent consumers.

Wealthy consumers continue to remain optimistic about the ongoing U.S. growth outlook.

“Do you see any signs that the economy is slowing?” Alex Barron, an analyst with the Housing Research Center, told Bloomberg. “So why would wealthy people be scared to buy?”

The homebuilder reported the number of homes completed and turned over to customers jumped 18% in the second quarter while the number of signed contracts gained 7%. Toll also projected that the average price for its homes in the current fiscal year to be between $835,000 and $860,000, or $5,000 above the low-end of its previous guidance.

Toll's Surprise Numbers

Toll’s numbers were also a surprise given that the latest Commerce Department data revealed sales of new single-family homes falling in June to the weakest pace in eight months, which fueled to concerns about a potential slowdown in activity and previously dragged on the broader homebuilder sector.

“What you’re seeing in the stock is a relief rally because it’s been hammered so much in the last year or so,” Drew Reading, an analyst with Bloomberg Intelligence, told Bloomberg. “Investors are relieved that it’s not a broad-based slowing of demand at the high end.”

For more information on the housing market, visit our homebuilders category.