Weak Housing Market & Weak Home Depot Earnings

Weak Housing Market - Small Caps Underperform

On Tuesday, the stock market took a slight breather as the S&P 500 fell 8 basis points, the Nasdaq fell 7 basis points, and the Russell 2000 fell 0.71%. The VIX rose for the 2nd straight day as it increased by 2.15% to 15.17. Maybe the spike on Monday was a sign correction is coming. There certainly isn’t much reason for stocks to rally from here as the economic data that came out Tuesday wasn’t good.

Weak Housing Market - Weak Home Depot Earnings

Home Depot missed earnings and revenue guidance which is in line with the weak housing data in Q4 2018. EPS was $2.09 which missed estimates by 7 cents. Revenues were $26.49 billion which missed estimates by $80 million. Same-store sales growth was 3.2% which missed estimates for 4.5% growth. Home Depot stock fell about 3% in the morning, but it recovered during the trading session as it only fell 0.91% on the day.

The warm December hurt sales by 0.85%. Usually, I don’t like when firms use the weather as an excuse for poor results. However, the weather isn’t an excuse for the poor 2019 guidance. The firm expects EPS to be $10.03 which missed estimates by 23 cents. Revenue guidance calls for 3.3% growth which is much less than last year’s 7.2% growth.

The good news for shareholders is the firm boosted its dividend by 32% and announced a new $15 billion buyback. This report signals the housing market is weak. This is exactly in line with the housing reports that came out Tuesday as housing starts, the S&P CoreLogic Case-Shiller home price index, and the FHFA house price index all missed estimates.

Weak Housing Market - Housing Starts

Housing starts missed estimates sharply as they were 1.078 million on a seasonally adjusted basis in December which missed estimates for 1.26 million. This was much below the low end of the expected range which was 1.2 million. Housing starts missed estimates by the most in 12 years. The November report was revised lower from 1.256 million to 1.214 million. This report supports the consistent theme that the housing market was terrible in December. Thankfully, about all the economic reports from December besides the Q4 GDP report have come out.

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