What happened
For the week, shares of the giant mortgage originator Rocket Companies (RKT 1.23%) traded roughly 10.3% lower as of 1:46 p.m. ET Thursday, according to data provided by S&P Global Market Intelligence.
The move appears to be driven by changing market sentiment and as the company continues to deal with tougher mortgage conditions.
So what
After comments from Federal Reserve Chairman Jerome Powell last week, in which Powell said that the Fed had more work to do to rein in high inflation and that there could be some economic pain as a result, investors have become more bearish.
The market now believes the Fed will stay hawkish for longer, raising interest rates into 2023. Rising rates are not good for Rocket's business because it dries up refinancing activity, which boomed in 2020 and 2021 and was extremely beneficial for Rocket's business. With rates rising, Rocket has seen closed loan origination volume fall in recent quarters and expects margin compression to continue.
Earlier this week, Rocket offered more voluntary buyouts to employees, as it looks to cut costs and control expenses while revenue takes a hit.
"We recognize career growth options in certain areas of our business are limited right now, while the housing market normalizes following two years of unprecedented volume," human resources executive Mike Malloy wrote in a note to employees.
Now what
Rocket is a tough stock to evaluate right now. The business is obviously not doing well due to the impact from rising interest rates on the mortgage business. Could Rocket be the player in the fragmented mortgage space to take a controlling share of the U.S. mortgage market long term? It's quite possible.
But with rate hikes still expected to continue for a while and still a lot of economic uncertainty, I don't see an urgent need to fight the Fed right now. For this reason, I am avoiding Rocket's stock for the time being.
