Shares of Opendoor Technologies (OPEN 14.57%) surged today, seemingly in response to President-elect Trump’s plans to make hedge fund manager Scott Bessent the next Treasury secretary.
Treasury yields fell on the news, which is good for stocks like Opendoor, as Bessent is expected to be a sober steward of the economy, helping to rein in the deficit and keeping the company’s financial house in order. Stocks that are sensitive to interest rates, like Opendoor, jumped on the news, and Opendoor shares finished the day up 14.6%.
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The 10-year Treasury yield fell 3.3% to 4.27% as investors reacted to the Bessent pick. That was a good sign, showing that investors believe that the Treasury nominee will help control inflation and narrow the budget deficit. Bessent had earlier made a proposal to narrow the budget deficit from 6% to 3% by 2028.
Treasury yields had initially jumped after Trump’s election as investors were fearful that tariffs and tax cuts would lead to higher inflation and larger deficits. However, Bessent’s nomination seems to have helped assuage those fears.
Falling Treasury yields are a boon for Opendoor as the company essentially makes money from home-flipping, or buying and selling single-family homes. The housing market, including Opendoor, has been crushed by high mortgage rates, so anything that makes them come down is good for Opendoor.
What’s next for Opendoor
Opendoor has struggled since it went public back in 2020. The company has never been profitable, and the decision by peers like Redfin and Zillow to pull the plug on their “iBuying” seemed to cast further doubt on the model, though it also eliminated competition.
Opendoor got stuck with too much inventory as the housing market ground to a halt, but it has regrouped and cut costs after multiple rounds of layoffs. After slashing inventory, the company is now rebuilding it, but it remains unprofitable.
It will likely take a meaningful decline in mortgage rates and a rebound in existing home sales for Opendoor to turn a profit. Keep your eye on where interest rates go as Opendoor should continue to move in response to them.
Jeremy Bowman has positions in Redfin. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool recommends Opendoor Technologies and Redfin and recommends the following options: short November 2024 $13 calls on Redfin. The Motley Fool has a disclosure policy.
