The Dow Jones Moves Higher As Housing Stocks Lose Favor
As today is the official start of earnings season, with Alcoa 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 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 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 stock lower by 2.71% and Lennar's 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.
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Fool contributor Matt Thalman has no position in any stocks mentioned. Check back Monday through Friday as Matt explains what caused the Dow's winners and losers of the day, and every Saturday for a weekly recap. Follow Matt on Twitter: @mthalman5513. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.
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