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Why Shares of United Wholesale Mortgage Are Rising Today

By Bram Berkowitz - Mar 2, 2021 at 11:59AM

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The company announced it will likely join new indexes in the near future.

What happened

Shares of United Wholesale Mortgage (UWMC 2.24%) shot up by as much as 16% at one point in the early hours of trading. The company announced on Twitter today that it had been included in the preliminary list of IPO additions for the Russell 1000 and Russell 3000 indexes.

So what

The Russell 1000 Index is composed of the top 1,000 companies by market capitalization in the U.S., while the Russell 3000 tracks some of largest U.S. stocks and provides exposure to the entire stock market. United Wholesale currently has a market cap of more than $16.5 billion.

Stocks typically rise on news of joining indexes because funds that track that index must now buy the stock. Also, being added to an index results in greater awareness and visibility for the stock.

A home with a large front yard

Image source: Getty Images.

United Wholesale also may be riding the wave from another mortgage company, Rocket Companies, which is seeing its shares climb today as well.

After surging to a recent high of around 1.6%, the yield on the U.S. 10-year Treasury note has recently retreated back to around 1.43%. This is an important benchmark for mortgage companies because mortgage rates directly follow the note's yield.

When mortgage rates decline, more people are interested in refinancing their mortgages, and purchase mortgages become cheaper as well, which is good for mortgage companies.

Now what

The public markets have been choppy waters for mortgage companies lately. Even with the recent bump, United Wholesale still trades below the price it went public at in April 2020. And that's while mortgage companies like United Wholesale generated record earnings in 2020.

Many investors believe the mortgage market peaked in 2020, leading them to take a harsh view of the industry.

Also, bond yields are likely to continue to rise this year, further hurting the mortgage market, so United Wholesale will have its work cut out to prove to investors it can succeed in more of a rising-rate environment.

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