The Dow Jones Moves Higher As Housing Stocks Lose Favor

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

As today is the official start of earnings season, with Alcoa (NYSE: AA  ) having reported second-quarter earnings after the closing bell today, investors didn't really get a clear sign of what to expect moving forward. Alcoa posted a slight beat on earnings per share but just missed on revenue, as aluminum prices continued to fall during the second quarter of 2013. The report does indicate that Alcoa's management team is doing a great job at controlling costs as the price of its key product continues to fall, but the fact that a key building material used around the world is in weak demand is not something investors like seeing.  

Moving into the release of Alcoa's results, the Dow Jones (DJINDICES: ^DJI  ) rose 88 points, or 0.59%, today and now sits at 15,224, or less than a few hundred points below its all-time closing high of 15,409. The S&P 500 and NASDAQ also both increased in value today, rising 0.53% and 0.16%.

But although the major indexes all performed well, that doesn't mean all industries shared the same fate. This afternoon I discussed how one analyst's comments caused a number of the Dow's technology stocks to move lower, and now I will explain which one man caused a number of the homebuilders' shares to also decline today.

This morning on CNBC's Squawk Box, former Pulte (NYSE: PHM  ) Chairman and CEO James Grosfeld said that housing prices are unlikely to return to the peaks they experienced during the boom times running up to the most recent financial crisis and ensuing recession. Furthermore, he said, "you don't have these, what I call, irresponsible mortgages out there that make it very, very easy to buy homes." The tougher restrictions on mortgages and the fact that "mortgage rates are up very significantly," as Grosfeld pointed out, will both surely hamper housing prices.  

These comments not only sent Pulte's shares lower by 2.85%, but it also sent DR Horton's (NYSE: DHI  ) stock lower by 2.71% and Lennar's (NYSE: LEN  ) stock down 2.48% today. As housing prices begin to slow, the difference between what a homebuilder can build a home for and sell it for will remain stable or also just slowly grow, making future revenue and profits experience perhaps weaker-than-expected results. Currently both Pulte and Lennar are trading at around 23 and 17 times past earnings and 11 and 13 times future results, but if analysts' expectations for future results are higher than what they actually come in at, the shares of the homebuilders will probably fall lower in the future.

More Foolish insight
With the American markets reaching new highs, investors and pundits alike are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2527155, ~/Articles/ArticleHandler.aspx, 9/26/2016 12:15:08 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,115.10 -146.35 -0.80%
S&P 500 2,149.58 -15.11 -0.70%
NASD 5,263.95 -41.79 -0.79%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/26/2016 11:59 AM
^DJI $18118.04 Down -143.41 -0.79%
AA $9.77 Up +0.01 +0.10%
Alcoa CAPS Rating: ***
DHI $29.97 Down -0.21 -0.70%
D.R. Horton CAPS Rating: ***
LEN $43.05 Down -0.06 -0.14%
Lennar CAPS Rating: **
PHM $19.77 Down -0.04 -0.20%
PulteGroup CAPS Rating: ***