The Dow Gains as Homebuilders Soar, But Home Depot Gets Left Behind

The housing market continues to show signs of life, but Dow component Home Depot didn't benefit as much as homebuilding stocks.

Jun 24, 2014 at 12:30PM

The Dow Jones Industrials (DJINDICES:^DJI) were up a modest 10 points as of 12:30 p.m. EDT. News that The Conference Board's Consumer Confidence Index reached its highest level in almost six and a half years bolstered investor sentiment, while data on the housing market helped send homebuilders Hovnanian Enterprises (NYSE:HOV)and D.R. Horton (NYSE:DHI) respectively higher by 2.9 and 2.6%, carrying several other peers upward as well. Yet Dow component Home Depot (NYSE:HD) barely inched higher, mostly getting left out of the excitement on the housing front.


What housing is doing
Two different sets of housing data issued this morning painted slightly different pictures of the health of the market. The S&P Case-Shiller index showed only minimal monthly gains in seasonally adjusted home prices, with the key 20-city index up 0.2% for April. That slowed the rate of growth on a year-over-year basis to just 10.8%, which was somewhat slower than economists had projected. In particular, some of the most popular metropolitan areas have finally started to see growth rates slow from former unsustainable figures. While that might not be good news for those who enjoyed those big gains, it bodes well for those who want to see more stable markets going forward.

What really helped Hovnanian, D.R. Horton, and other homebuilders was news that new home sales soared. Single-family residential sales jumped almost 19% on a monthly basis, with an equally impressive 17% year-over-year gain. The Northeast had a biggest gain, with the West and South regions also posting double-digit percentage spikes as the Midwest lagged.

Homebuilders obviously live and die based on new-home sales, even though they make up only a tiny fraction of housing-market activity throughout the U.S. economy. The hope among shareholders of homebuilder stocks is that strength in the market will spur companies to boost their building activity to provide more supply to the market, especially given the drop in new-home inventories to four and a half months.


Why Home Depot got left out
Despite the positive news from new-home sales, Home Depot had to deal with other factors today. One Wall Street analyst firm issued a neutral rating on the stock, according it a weighting equal to the rest of the market and putting a $90 price target on shares, which is more than 10% higher than where Home Depot stock trades now.

Home Depot also has more to lose from disparities in the existing-home market versus the new-home market than homebuilders do. In many ways, homebuilders can ignore existing homes, counting on demand for new construction to support their efforts. Home Depot, on the other hand, makes huge amounts of revenue from homeowners seeking to upgrade their current houses, and one primary motivator for their efforts is seeing their projected home prices rise. Having already produced so much growth under tough conditions, it's harder for Home Depot to sustain its pace than it is for homebuilding stocks to recover from greater concerns.

For the Dow Jones Industrials, housing is an important component of construction and industry that affects more than just Home Depot. Even if Home Depot doesn't benefit as much from housing strength as it has in the past, the Dow overall needs housing to do well in order to help support the entire stock market.

Warren Buffett's biggest fear is about to come true
Warren Buffett just called this emerging technology a "real threat" to his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. It won't be long before everyone on Wall Street wises up, that's why The Motley Fool is releasing this timely investor alert. Click here to learn more about what's keeping Buffett up at night and the one public company we're calling the "brains behind" the technology.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers