Investors were inspired on Tuesday, July 14, when the Consumer Price Index (CPI) came in below consensus, indicating that inflation decreased month-on-month in June. The index fell by 0.4% between May and June, mainly due to lower electricity prices.
The annual rate of 3.5%, while still well above target, was also below the consensus of 3.8%. But much of the relief came from rate-sensitive sectors such as fintechs, Real Estate Investment Trusts (REITs), and entry-level homebuilders, many of whom have succumbed to sticky inflation, high prices, and tired consumers. While one print doesn't equate to a trend, the June number reflects this group well, especially the three stocks we'll discuss below.
The Hike Scare Just Lost a Few Teeth
Inflation has been rising sharply in recent months, and Federal Reserve governors such as Christopher Waller have considered voting for a rate hike starting this month when the Federal Open Market Committee (FOMC) meets on July 29. According to the CME Group's FedWatch tool, the probability of a July rate hike has risen from as high as 42% in July to 13% after the CPI release.
The odds of a September rate hike are still around 60% (and a cut is still completely off the table), but a three-month grace period would make sense in the areas we mentioned earlier. The 10-year Treasury yield fell sharply after the CPI release, a boost for homebuilders, as 30-year mortgage rates closely tracked the 10-year Treasury yield. Fintechs also suffer when loan rates are high, as loan demand weakens and credit risk increases. They are also considered growth stocks with income potential, not current profits. And REITs are a proxy for bonds and a proxy for real estate, benefiting from lower Treasury yields and lower borrowing costs for real estate.
Although the June report is the largest single-month CPI drop since April 2020, it is important to understand how the calculus has changed. Waller said it will take several months of data to convince him that inflation is actually moving in the right direction, and most of the CPI relief comes from lower fuel prices (down 9.7% month-on-month). The relief may not last long, but investors are now betting on a scenario where a single rate hike is on the table rather than multiple hikes before the end of the year. A pause in 2027 is still a dreamland effect, which may require appeasing a few heads of state, but the market is at least starting to price in a less aggressive way.
3 Stocks That Benefit from Ratio Support
Three stocks, one each from the REIT, homebuilder, and fintech industries, provide broad exposure to a potentially low-grade environment. An increase in prices may not be completely avoided, and a reduction still seems unlikely, but these stocks can benefit if further increases are ruled out.
DR Horton: The Affordable Home Builder
DR Horton Today
- 52 week interval
- $129.11
▼
$184.54
- Dividend Yield
- 1.18%
- The P/E ratio
- 14.28
- Target Value
- $168.62
DR Horton Inc. NYSE: DHI is the nation's largest homebuilder by net worth, specializing in entry-level homes for first-time buyers. More than 60% of the company's homes go to first-time buyers, a group for whom accessibility is often the most important factor. Lower mortgage rates put more tenants in the buyer pool, which also allows DHI to increase margins by reducing the purchase price and the incentives it offers.
The company posted top and bottom line earnings during its Q2 2026 report in April and upgraded its full-year revenue estimates, but buybacks and incentives were part of management pressure, with more than 70% of closings requiring buybacks. The Q3 2026 report is scheduled for July 21, so this CPI report is welcome news for management ahead of that conference call. DR Horton also has a policy base thanks to June's passage of the 21st Century Road to Housing Act, which sent DHI shares up nearly 7% at one point.
Real Income: Bond-Like Yields on a Strong Underlying Business
Real Income Today
Real Income
- 52 week interval
- $55.86
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$67.93
- Dividend Yield
- 5.09%
- The P/E ratio
- 52.40
- Target Value
- $67.17
Few publicly traded companies are more closely tied to the 10-year Treasury yield than Realty Income Corp. NYSE: Oa long-term rental REIT. The company pays a dividend of 5.1% with a track record of more than 30 years of annual dividend growth. And most importantly, this is not a weak REIT that depends on strong rates. The underlying business is in dire straits, as evidenced by the Q1 2026 earnings beat, where management raised Adjusted Funds from Operations (AFFO) and investment volume guidance. It also posted $2.8 billion in net income of 7.1%, and that spread will be healthy as financing costs decline. If the 10-year yield continues to decline and inflation is delayed, the stock's large accumulation is eliminated, and the 5.1% yield can continue to grow.
SoFi Technologies: Dynamic Demand for Loans Develops a Time Story
SoFi Technologies Today
SoFi Technologies
- 52 week interval
- $14.92
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$32.73
- The P/E ratio
- 41.10
- Target Value
- $22.78
The company SoFi Technologies Inc. NASDAQ: SOFI it's a high-beta way to play rates if the Fed slows. The Company derives a large portion of its revenue from lending, primarily personal and student loans. SoFi is a nationally chartered bank with a diverse lending portfolio, but the need to refinance personal and student loans was quiet during the high-profile regime. The stock is down about 30% year to date. However, this performance is contradicted by some promising results.
Despite the stock's sharp decline, SoFi's Q1 2026 report was strong as revenue grew 42% year-over-year to $1.09 billion, above expectations of $1.05 billion. The company also reported loan originations totaling $12.2 billion. A stable rate situation may not result in capital accumulation, but it can help revive the company's student loan program. Analysts at Goldman Sachs seem to agree; raised their price target on the stock from $17 to $21 on July 9.
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