Rocket Companies (NYSE: RKT) is blasting through market turmoil

Rocket Companies (NYSE: RKT)—the largest mortgage lender in the US—has been on a bit of a tear, escaping the market turmoil earlier this month that was triggered by fresh concerns about the health of the global economy. Investors are predicting that the company will be one of the first to benefit when the Federal Reserve begins to cut interest rates.

American borrowers tend to lock in a mortgage interest rate that’s set when a home is purchased, and the prevailing market can make or break a deal. That’s why sales of existing homes remained at the lowest level in 30 years in June as the average rate on a 30-year fixed mortgage loan topped 7%. It had been below 3% just four years earlier. 

Interest rate traders tracked by CME’s FedWatch tool are currently placing a 100% chance that the central bank will begin easing in September, with 54.5% expecting a 50-basis point cut. That should quickly result in substantial savings for prospective borrowers and begin to give the industry a much needed boost. The more rates are cut, the easier it becomes to afford a potential mortgage payment. The difference between a mortgage rate of 3% and 6% on a $500,000 home is $1,250 a month.

“The operative question is really not if the market will rebound,” Rocket Companies CEO Varun Krishna said in an earnings call. “It’s really when and how. And while we might not know exactly when, we do know that ‘24 is better than ‘23, and we believe that ‘25 is going to be better than ‘24.”

The market seems to share that sentiment. While both the Dow Jones Industrial Average and S&P 500 saw their worst trading day in two years last week after a lackluster jobs report and jitters about Berkshire Hathaway’s (NYSE:BRK.B) recent sales of Apple (NASDAQ:AAPL), Rocket Companies didn’t seem to notice. Amid a sea of red that had some market watchers worried about a new “Black Monday,” its shares rose nearly 3%.

It’s the continuation of a trend that first became evident as small-cap shares started to outperform larger companies that don’t need to borrow as much money. Despite the ongoing volatility, Rocket Companies shares rose 26% over the past month. Two other mortgage lenders—UWM Holdings (NYSE:UWMC) and Loandepot (NYSE:LDI)—have seen monthly gains of 10% and 23%, respectively. 

The robust performance amid a sea of uncertainty is another reminder that opportunities will abound, even as many popular trading strategies start to unwind with the changing tides. The coming lower rate environment will pick new winners, and the housing and mortgage sectors seem set to be among the first.