Dow Friday: Will a Housing Slowdown Make Stocks Slump in 2014?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrials (DJINDICES: ^DJI  ) appear poised to end what has been a quiet holiday-shortened week on a similarly sedate note. As of 11 a.m. EST, the average was up about 38 points, putting the Dow very close to the same level where it started the week. That might well come as a surprise to many investors, given the ongoing bombardment of downbeat economic data we've seen from the housing market this week. Yet not only have Dow component and home-improvement specialist Home Depot (NYSE: HD  ) and peer Lowe's (NYSE: LOW  ) not taken any appreciable damage from the data, but even the homebuilder stocks in the SPDR S&P Homebuilders ETF (NYSEMKT: XHB  ) have fared reasonably well. Investors are questioning whether that means the stock market is immune to a housing slowdown.

Today's data on existing-home sales raised many of the same concerns that the plunge in new-home starts did earlier in the week. The National Association of Realtors said January home sales fell more than 5%, reaching their worst level in a year and a half. As we've seen repeatedly in recent weeks, analysts put most of the blame for the drop on the cold weather that has plagued much of the nation. But even with that fact well-known, the consensus among economists was that sales would drop slightly less than 4%. Moreover, falling sales in the West, where weather was less of a factor, suggest that a more general slowdown might be here.

Yet one reason the stock market isn't panicking at the prospect of weakness in the housing sector is that after such a big recovery from the financial crisis, periods of sluggish growth are part of the normal economic cycle. So much of the trouble from the crisis came about because the housing market didn't go through these periodic slumps, instead moving upward at a breakneck pace that proved unsustainable. In other words, by accepting that the housing market will occasionally look less robust, investors are focusing more on long-term prospects. That has investors less concerned about things like rising mortgage rates and their short-term impact on the market.

When you look well into the future, fundamentals in housing appear more favorable. The financial crisis led to a near-standstill in homebuilding activity, and many cite the potential for a coming shortage of homes that could take years to fulfill. That's good news for homebuilding stocks, which will have the opportunity to build the homes that more people will want over time.

At the same time, Home Depot and Lowe's discovered during the housing bust that there are other ways they can promote their respective businesses. As long as the general economy keeps moving up, the two retail giants can profit from people staying in their homes as long as they can get those folks to take on improvement projects and renovations.

For now, at least, it doesn't appear that a dip in housing activity will spread beyond the sector and cause the entire stock market to lose steam in 2014. If the move proves to be more than just a cyclical downturn, that might change, but there's little reason to expect further worsening when winter ends.

Find growth for your portfolio
Pick great growth stocks consistently? They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Read/Post Comments (0) | Recommend This Article (2)

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.

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: 2848758, ~/Articles/ArticleHandler.aspx, 8/27/2015 5:30:16 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...

Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated Moments ago Sponsored by:
DOW 16,654.77 369.26 2.27%
S&P 500 1,987.66 47.15 2.43%
NASD 4,812.71 115.17 2.45%

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

8/27/2015 4:35 PM
^DJI $16654.77 Up +369.26 +2.27%
HD $117.66 Up +1.73 +1.49%
Home Depot CAPS Rating: ****
LOW $69.06 Up +0.31 +0.45%
Lowe's CAPS Rating: ****
XHB $36.18 Up +0.49 +1.37%
SPDR S&P Homebuild… CAPS Rating: *