US housing starts rose in November. The reading moved from -4.6% to 6.2%.
The latest data shows housing starts increased compared with the prior period. The earlier figure showed a 4.6% drop.
Housing Strength Shifts Fed Expectations
The sharp rise in housing starts in November 2025 showed the economy was stronger than many expected. Markets began to move away from fears of a hard downturn and toward a firmer outlook. This has made us rethink what the Federal Reserve may do in the months ahead.
This strength is also supported by the January 2026 jobs report, which showed 215,000 new payrolls. The January 2026 consumer price index also showed inflation staying sticky at 3.1%, slightly above forecasts. As a result, the chance of a March rate cut, once widely expected, has fallen sharply.
Derivative traders may want to adjust positions in interest rate futures, including SOFR-linked contracts. We see value in trades that expect the Fed to keep rates steady for longer than the market had priced in. This could mean selling futures contracts or buying put options on Treasury bond ETFs to help protect against rising yields.
In equities, homebuilder stocks, tracked by ETFs like XHB, have performed well since the November 2025 release. It may now make sense to manage risk with options, such as buying protective puts or selling covered calls on existing positions. While the January 2026 housing starts report eased to a 1.47 million annual rate, it is still historically strong and continues to support the sector.
Strong housing activity also affects commodities like lumber and copper. Lumber futures, which rallied in late 2025, have started to settle near recent highs. We see potential in options spreads on these futures to trade a market that may stay range-bound in the near term.
Dollar Trade As Macro Hedge
A more hawkish Fed outlook often supports a stronger U.S. dollar. With other global central banks signaling a more dovish stance, we think long positions in U.S. Dollar Index (DXY) futures could do well. This can also serve as a macro hedge against ongoing geopolitical and economic uncertainty.
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