Homebuilder ETFs Hit a Wall

Exchange traded funds that invest in homebuilders have lost momentum in the past month, a sign the stock-market rally might be running out of steam.

Improved prospects for financial stocks, homebuilders and other beaten-down sectors have been pushing up shares in recent weeks. In the month through May 21, the iShares Dow Jones U.S. Home Construction Fund(ITB Quote) fell 4.7% and the SPDR S&P Homebuilders ETF(XHB Quote) slid 7.7%, compared with a 5.3% gain for the S&P 500 Index. The PowerShares Dynamic Building & Construction Portfolio(PKB Quote) gained 1.9%, but is showing signs of deterioration.

The industry has made a few notable improvements recently. Toll Brothers(TOL Quote) and Ryland Group(RYL Quote), holdings in the iShares and SPDR funds, have raised much-needed capital in the past month. The boost follows a weak second quarter for Toll Brothers, which said revenue fell 51% after selling 47% fewer homes than a year ago. However, there was also some optimism in the numbers: Toll Brothers' 22% cancellation rate was down from 37% a year ago. ...