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S&P 500 Bounces Back: Cruise Lines, Kohl's, Homebuilders Rally, but Citi Calls for 9% Decline by Year-End

By Jason Hall - Updated Jul 8, 2020 at 5:54PM

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Two sectors and a positive day for the retailer helped keep the good times rolling.

The S&P 500 (^GSPC -0.01%) moved back up on Wednesday following Tuesday's 34-point sell-off that broke a five-day streak of gains. Today, the S&P gained 24.6 points, up almost 0.8%.

Kohl's (KSS 3.73%) led the charge with one of the best gains of any S&P 500 stock, up 9.5% following a bullish note from an analyst. Cruise stocks Carnival (CCL 2.14%)Royal Caribbean (RCL 1.30%), and Norwegian Cruise Line Holdings (NCLH 2.03%) also had a great day, up between 4.7% and 5.3%. 

The same was true of homebuilder stocks, with Lennar (LEN 2.37%) (LEN.B 2.40%) up 5.4%. D.R. Horton (DHI 1.73%) and PulteGroup (PHM 3.09%) were also up around 4%, while NVR (NVR 0.76%) shares edged up 2.8%. 

On the bearish side of the ledger, analysts at Citigroup cautioned that the good times may not last, updating their forecast for the stock market for the rest of 2020. 

Carpenter building a house.

Image source: Getty Images.

Kohl's shares rise on analyst upgrade 

The discount retailer has had a tough year, like most of its peers, struggling under the weight of having closed its entire store base this spring as part of efforts to slow the spread of COVID-19. At one point, its stock was down more than 75% from the 2020 high. An analyst with Bank of America Merrill Lynch Securities, however, sees its prospects as improving, in large part due to the nature of its business and where its stores are located.

In a note, Lorraine Hutchinson pointed out that 95% of its stores are not in indoor malls, 90% have reopened, and those stores recovered at least 75% of their sales volumes as of early June. Hutchinson upgraded her ranking on the stock to buy and raised the price target from $20 to $27. After today's gains, Kohl's shares are above $22, but likely to remain very volatile as long as the coronavirus pandemic continues. 

Homebuilders keep delivering good news

Another day, another strong report from another homebuilder. On Tuesday, small builder LGI Homes (LGIH 2.15%) announced a record number of home closings in June and its best second quarter ever, while today, Taylor Morrison Home (TMHC 0.40%) announced its own best-ever June.  

If there's one segment of the economy that has so far broken the usual trend during recessions, it's homebuilders. During a typical economic downturn, people hold off on buying homes, but with each passing month, homebuilders have reported better-than-expected results. A big reason for this looks to be the ongoing surge in demand for entry-level housing, despite record levels of unemployment. For most of the past decade, builders focused on move-up and custom homes, and now millions of millennials are in the market.

Millions of those young buyers are also still employed, and still looking to buy a first home. Low interest rates are providing enough incentive to bring even more buyers into the market, and homebuilders are taking full advantage. 

A rising tide for cruise lines?

Wednesday was a good day for cruise line stocks, following word that the Healthy Sail Panel formed by industry heavyweights Norwegian and Royal Caribbean is hard at work developing measures to safely return to the seas. The two partners, along with Carnival, are set to participate in a virtual summit being held by the World Travel and Tourism Council in late July to discuss the planned measures. 

The industry is still months from embarking on any cruises. The CDC's "no cruise" order won't expire until July 24, and the industry has said nobody is setting sail before mid-September. Add it all up, and today's gains are a product of investors getting their hopes up, not any material move forward for any company or the industry. In the interim, expect plenty of rough seas for cruise line investors as the market moves on speculation and sentiment, not business results. 

Citi says, "Not so fast, Mr. Market!"

Earlier estimates from Citigroup said the S&P 500 could finish the year at 2,700. A recent update bumped that target higher to 2,900, citing the likelihood of continued stimulus from the federal government helping to prop up equity markets. 

But despite that increase, the 2,900 mark is still more than 8.5% below today's closing level of 3,169.94. That serves as a reminder that the U.S. is still deep in the woods of the coronavirus pandemic, and that stocks have indeed been buoyed by the unprecedented actions taken by the U.S. government to keep the economy and financial markets functioning. 

In broader terms, CitiGroup's chief U.S. equity strategist Tobias Levkovich said that monetary policy would likely prevent a decline of more than 20%, and a range of 2,700 to 3,200 for the index through the end of the year seems reasonable. Whether it proves accurate is another question entirely. A tremendous number of variables come into play, most of which cannot be predicted with any accuracy. 

And that's a reminder that stocks are excellent investments for long-term wealth creation, but not a good bet for the short term. Nobody knows how stock investors will be voting on prices come year-end. But if you're worried about the next market crash, there are steps you can take to be prepared

Jason Hall owns shares of Bank of America and LGI Homes. The Motley Fool owns shares of and recommends NVR. The Motley Fool owns shares of LGI Homes. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Carnival Corporation Stock Quote
Carnival Corporation
CCL
$10.03 (2.14%) $0.21
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,144.71 (-0.01%) $0.48
PulteGroup, Inc. Stock Quote
PulteGroup, Inc.
PHM
$43.69 (3.09%) $1.31
Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
RCL
$40.19 (1.30%) $0.52
Lennar Corporation Stock Quote
Lennar Corporation
LEN
$86.74 (2.37%) $2.01
Kohl's Corporation Stock Quote
Kohl's Corporation
KSS
$31.69 (3.73%) $1.14
D.R. Horton, Inc. Stock Quote
D.R. Horton, Inc.
DHI
$77.67 (1.73%) $1.32
NVR, Inc. Stock Quote
NVR, Inc.
NVR
$4,392.84 (0.76%) $33.11
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$13.48 (2.03%) $0.27
Taylor Morrison Home Corporation Stock Quote
Taylor Morrison Home Corporation
TMHC
$27.94 (0.40%) $0.11
LGI Homes, Inc. Stock Quote
LGI Homes, Inc.
LGIH
$110.48 (2.15%) $2.33
Lennar Corporation Stock Quote
Lennar Corporation
LEN.B
$68.30 (2.40%) $1.60

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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