Housing-Related Stocks Piscine Corp. (NASDAQ: POOL), Home deposit (NYSE:HD)And Lowes (NYSE: LOW) were down in Tuesday trading, down 6.9%, 4.1% and 4.6%, respectively, as of 1:12 p.m. ET.
When all real estate-related names fall in tandem, it’s likely a sign that something is wrong with a big name, or more generally with consumer confidence and/or inflation and interest rates . On Tuesday, unfortunately, we saw all kinds of negative contributors.
Pool Lowers Its Forecast After Hours Monday, and Consumer Confidence and Fed Speech Don’t Help
After hours yesterday, Pool Corp. issued a press release announcing weak second-quarter revenue and lowering its full-year profit forecast. In the release, the company noted that second-quarter revenue was down approximately 6.5% from a year earlier and that it expects full-year revenue to decline in a similar range. Management also lowered its earnings per share tips from a range of $13.19 to $14.19 to a new range of $11.04 to $11.44.
While management noted that the “non-discretionary” parts of the business remain strong, as one would expect, the “discretionary” parts of the business, based on general economic conditions, are much weaker than expected. In fact, CEO Peter D. Arvan explained that the company now expects new pool construction activity to be down 15 to 20 percent this year, while renovation activity appears to be trending to fall by 15%.
Not surprisingly, Pool’s negative comments also weigh on Home Depot and Lowe’s today. All three stocks operate in the large home improvement purchase sector, so each is sensitive to financing interest rates and the same types of macroeconomic factors. Pool Corp. is a leading supplier of pool maintenance products, as well as other outdoor home products like grills and decks, while Home Depot and Lowe’s operate as a sort of product retail duopoly renovation and decoration.
As if Pool’s comment wasn’t enough, Tuesday also saw other negative data on the economic environment related to housing. At a conference in London earlier today, Federal Reserve Governor Michelle Bowman made hawkish comments about the interest rate outlook. “Inflation in the United States remains elevated and I still see a number of upside inflation risks affecting my outlook,” Bowman said, while reiterating that she does not expect inflation to fall. interest rate this year.
Higher rates mean big-ticket projects become that much more expensive, which is likely to cause many consumers to delay those projects altogether.
As further evidence of this negative sentiment, June consumer confidence figures from the Conference Board survey were released today, showing a slight decline to 100.4, from the downwardly revised figure of 101 ,3 of May.
It’s not a particularly terrible read, just about neutral. Still, the month-over-month decline, as well as the downward revision of the previous month’s figures, could affect the mood today for economically sensitive stocks, particularly home goods retailers like these three -there.
A big turnaround from the peak of the pandemic
At the height of the COVID-19 pandemic, when interest rates were extremely low and consumers could not spend on travel, the home improvement industry was booming. Unfortunately, the reversal of all these trends is being felt hard today, and it appears that the sector will not normalize until inflation and interest rates return to a more normal range.
While many expected rates to begin falling through 2024, persistent inflation in recent months has seemingly pushed back that timeline, and the wait is clearly weighing on companies like Pool and other short stocks housing retail.
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Billy Duberstein and/or its clients have no position in any of the stocks mentioned. The Motley Fool posts and recommends Home Depot. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a disclosure policy.
Why Pool Corp., Home Depot and Lowe’s Plunged Today was originally published by The Motley Fool
