Shares of housing-related stocks Pool Corp. (NASDAQ: POOL), DIY store (NYSE:HD)And Lowe’s (NYSE: LOW) fell in Tuesday trading, down 6.9%, 4.1% and 4.6%, respectively, as of 1:12 PM ET.
When housing-related names all coincide, it’s probably a sign that something is going wrong with one big name, or more generally with consumer confidence and/or inflation and interest rates. Unfortunately, there were all kinds of these negative contributors on Tuesday.
Pool lowers guidance Monday after business hours, and consumer confidence/Fedspeak isn’t helping
Yesterday Pool Corp. published after-hours press release announcing weak sales for the second quarter and lowering full-year profit expectations. In the press release, the company noted that second-quarter sales fell approximately 6.5% from the prior year, and that it expects full-year sales to decline in a similar range. Management also lowered earnings per share guidance from $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 remained solid, as one would think, based on general economic conditions, the “discretionary” parts of the business are much weaker than expected. CEO Peter D. Arvan explained that the company now expects new pool construction activity to decline 15% to 20% this year, while renovation activity appears to be down 15%.
Not surprisingly, Pool’s negative commentary today also drags down Home Depot and Lowe’s. All three stocks play a role in the major home improvement purchases sector, so each is sensitive to interest rates for financing and the same types of macroeconomic factors. Pool Corp. is a leading supplier of pool maintenance products, as well as other outdoor products such as grills and decking, while both Home Depot and Lowe’s operate as a kind of retail duopoly for home improvement and decorating products.
As if Pool’s comments weren’t enough, Tuesday also saw other negative data points about the economic climate as it relates to housing construction. At a conference in London earlier today, Federal Reserve Governor Michelle Bowman commented aggressively on the outlook for interest rates. “U.S. inflation remains elevated and I continue to see some upside inflation risks impacting my outlook,” Bowman said, also reiterating that she does not expect any rate cuts this year.
Higher rates mean major projects will become much more expensive, likely leading many consumers to postpone such projects altogether.
In further evidence of that negative sentiment, consumer sentiment figures from The Conference Board Survey for June were released today, showing a slight decline to 100.4 from May’s downwardly revised 101.3.
That’s not a particularly terrible read, about neutral. Still, the month-on-month decline, as well as the downward revision of previous months’ figures, could impact sentiment for economically sensitive stocks today, especially home retailers like these three.
A major turnaround from the height of the pandemic
During the height of the COVID-19 pandemic, when interest rates were super low and consumers could no longer spend on travel, the home improvement industry boomed. Unfortunately, the reversal of all these trends is now being severely scaled back, and it appears that the sector will not normalize until inflation and interest rates return to more normal levels.
While many had expected rates to continue falling until 2024, persistently stubborn inflation in recent months has seemingly pushed that timeline forward, and the wait is clearly weighing on companies like Pool and other housing stocks.
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Billy Duberstein and/or his clients have no positions in the stocks mentioned. The Motley Fool holds and recommends positions in Home Depot. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a disclosure policy.
Why Pool Corp., Home Depot and Lowe’s Took a Dive Today was originally published by The Motley Fool
