Locking in Gains on a Construction Play as Rate Concerns Mount

Symbol	Transaction Type	# Shares Traded	Recent Price $	Shares Owned After Trade	% Portfolio
URI	Sell	106	985.14	94	1.5

After you receive this alert, the Pro Portfolio will sell 106 shares of United Rentals (URI) at or near $986. Following the trade, we will own 94 URI shares, which will account for 1.5% of the Pro Portfolio’s assets.

With Treasury yields moving higher following the August PPI report that added another reason to think the Fed will deliver a rate hike next week, the Portfolio’s individual stock positions are mixed. Gains in Apple (AAPL), Boeing (BA), and several others are being offset by declines in Applied Materials (AMAT), Eaton (ETN), Marvell (MRVL) and few others. Some of the Portfolio’s more defensive positions, including Welltower (WELL) and Waste Management (WM), are finding their footing but the one that is weighing the most on the Portfolio today is United Rentals (URI).

Our view on United Rentals has been that nonresidential construction activity, including for data centers, would offset weak homebuilding activity, driving demand for URI’s equipment rental fleet. What’s weighing on URI shares today is the specter of higher interest rates that could slow nonresidential construction projects and push out any expected recovery in the housing construction market. On top of that JPMorgan downgraded URI shares to Neutral from Overweight, resetting its price target at $1,170.

Part of JPMorgan’s thinking reflects the question over whether URI can continue to be a consolidator in the equipment rental business. One of the reasons we have liked the URI management team is its ability to not only complete nip-and-tuck acquisitions and the every-so-often larger size deal, but its ability to leverage those acquired capabilities across its rental footprint. That said, we don’t bake in any unannounced acquisitions into our thinking when it comes to URI’s business or our price target.

Nevertheless, higher interest rate are likely going to raise project hurdle rates and that could mean slower nonresidential construction spending in upcoming quarters. Arguably, the slide in URI shares over the last month takes that into account. But if upcoming data increase the likelihood the Fed will have to deliver a second rate hike in the coming months, that aggregate 50-basis points in higher rates would likely translate into more than a marginal impact outside of data center and power construction.

Here’s the thing, over the last two months, we’ve seen the yield on the 10-year Treasury climb more than 50 basis points. Fed Chair Warsh could argue next week that the market is doing the Fed’s job for it. Of course, the late August push from just over 4.6% seen in the chart below came after Warsh’s more hawkish comments at the Jackson Hole Symposium. We’ve seen Fed officials jawbone the market to where they want it to be, and with the benefit of hindsight perhaps that is what Warsh was hoping to do.

That brings us back to the question of the Fed potentially delivering more than one rate cut before then end of 2026. The answer to that will hinge on the duration of the war between the Iran war, and related tailwinds pushing on inflation pressures. Our thinking is that there are signs the conflict is poised to continue through the mid-term elections and potentially even longer.

Over at the Daily Diary I shared the following from Bloomberg:

Iran and the US are digging in for a protracted war, with little sign of a near-term ceasefire or return to normal Middle East energy flows even if hostilities remain at a low intensity.

Tehran’s leaders are resolved to keep fighting despite mounting economic costs as they see the conflict as an existential threat, Bloomberg reported, citing a senior Iranian official. The country has been able to rebuild its missile capabilities and will escalate strikes on US and Gulf assets if Washington intensifies its own attacks, the official said.

Top White House advisers including Vice President JD Vance and Secretary of State Marco Rubio have told President Donald Trump that the war could drag on through the remainder of his term, which runs until January 2029, the Wall Street Journal reported, citing US officials.

Let’s Put the Pieces Together

Between now and next Wednesday, when the Fed concludes its policy meeting and updates its Set of Economic Projections, we have the August CPI report tomorrow and a few more days of trading in the oil markets. Should we see a hotter-than-expected CPI report and oil continue to trend higher, that combination is likely to push up market expectations for the Fed to deliver more than one rate hike this year. That would weigh further on URI shares and others out there that are more interest-rate sensitive.

If that is what unfolds, the next layer of support in the URI chart is near $928, but there is also a gap on the chart that isn’t filled until around $800. While $928 is 6% lower, $800 is $19% lower from the current share price.

Given all of the above and that technical picture, the risk to reward in URI shares is at best even, but arguably skews more toward the risk side. With that in mind, we’re locking in a big chuck of the more-than-68% gain associated with the Portfolio’s position, and downgrading URI shares to a Three rating from Two. With that in mind, our URI price target is under review.

Should tomorrow’s data and the trend in oil, diesel, and other related products continue to move higher over the next few trading sessions, suggesting the Fed deliver an even more hawkish outlook, that would give us reason to exit our remaining URI position.

Locking in this big double-digit gain today will bring the Portfolio’s cash position back up to around 8.7% of its assets.

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(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade’s executed price here. Be sure to toggle the chart to sort by Purchase Date.)

At the time of publication, TheStreet Pro Portfolio was long URI, AAPL, BA, AMAT, ETN, MRVL, WELL and WM.