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An upcoming economic report could shed light on the economy — and drive stocks

The Mortgage Bankers Association is set to release its weekly mortgage application data Wednesday before the market opens, and some are watching the report as a measure of broader economic health.

The report is particularly important because housing is the lynchpin to the recovery appearing in the overall market, says Dennis Davitt, portfolio manager at Harvest Volatility Management.

"An increase in the mortgage application number will show that there's a lot of consumer confidence out there, and people are believing in the current economic rebound that we're seeing," Davitt said Tuesday on CNBC's "Trading Nation."

The prior weekly report reflected a week-over-week growth of 0.43 percent. The survey covers about 50 percent of all U.S. retail residential mortgage originations.

If the housing market heats up, financial stocks will "heat up, and you'll also see suppliers heat up," as a result, Davitt said. Theoretically, a rising number of mortgage applications means demand for housing is rising, and banks will need to facilitate such applications.

Coincidentally, as Davitt pointed out, those are areas that have been lagging the broader market. The financial sector is lagging the S&P 500 this year by about 2 percent, and the materials sector is underperforming the broader market by about 1 percent in the same time.

The survey's results will also likely impact real estate-related equities and funds, such as the iShares U.S. Real Estate exchange-traded fund, the IYR. One stock Davitt particularly likes to track when a figure such as mortgage applications comes out is homebuilding firm PulteGroup.

"I feel like it's best in breed in the sector, and it tends to outperform the overall IYR ETF market," he said.

Disclosure: Dennis Davitt does not own shares of PulteGroup.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

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Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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