Stocks plunged on Thursday, dragged down by fears that the Federal Reserve’s rate-hike campaign will trigger a recession. With the retreat, the Nasdaq fell more than 4% and the Dow closed below 30,000.
Homebuilding stocks were among the hardest hit on the session. Investors fretted about rising mortgage rates and disappointing housing starts data. With an analyst downgrade also spurring the retreat, Taylor Morrison Home (TMHC), Tri Pointe Homes (TPH) and Green Brick Partners (GRBK) all finished lower, with a substantial slide also coming from Beazer Homes (BZH).
Elsewhere in the market, Sally Beauty Holdings (SBH) endured a substantial selloff as well. An analyst’s downgrade pointed to potential market share problems as inflation cuts into consumer spending.
Despite the general downward pressure, Lytus Technologies (LYT) managed to post a significant advance. Shares rose about 25% in their second day on the public market.
Meanwhile, Grocery Outlet (GO) pushed to a new 52-week high on a bet that the company would benefit from frugal shoppers.
Sector In Focus
The prospect of higher mortgage rates and signs of cracks in the once-hot housing market sparked selling in the homebuilding sector.
The slide came a day after the Fed announced a rate hike of 75 basis points — the biggest one-time increase since 1994. Meanwhile, policymakers suggested that another 75 basis point hike was possible at the central bank’s next meeting.
Even before the Fed made its announcement, mortgage rates experienced a massive upswing. The 30-year fixed-rate mortgage jumped to 5.78% for the week ended June 16. The figure saw the biggest one-week growth since 1987 and rose to its highest mark since November 2008.
Meanwhile, Thursday saw the release of disappointing housing data. May housing starts dropped 14% from the previous month — a larger decline than economists had predicted. Building permits fell as well, retreating by 7% from the previous month.
Given this backdrop, B. Riley downgraded its rating on a handful of homebuilders. It cut Taylor Morrison Home (TMHC), Tri Pointe Homes (TPH) and Green Brick Partners (GRBK) to Neutral from Buy, citing flagging demand and gross margin pressure.
TMHC and GRBK both dropped about 13% on Thursday, while TPH fell 12%. Elsewhere in the sector, Beazer Homes (BZH) plunged 17%.
One of the newest members of the Wall Street family managed to buck intense selling pressure in just its second day as a public company. Lytus Technologies (LYT) rallied nearly 25%, adding to the massive gains it booked in its debut the previous session.
The India-based provider of streaming and telemedicine services priced a downsized IPO at $4.75 per share. When shares opened for the first time Wednesday, LYT instantly traded well above that mark, starting out at $20.
The stock gained from there but drifted lower later in the session, eventually closing its debut at $17.01 — a rally of more than 250% from its IPO price.
LYT added to that advance on Thursday, at one point spiking to a post-IPO high of $29. Shares eventually finished at $21.25, an advance of $4.24 on the day.
The pullback in consumer spending, prompted by higher prices and an uncertain economy, will take a toll on Sally Beauty Holdings (SBH), according to Morgan Stanley. A downgrade from the firm sent shares of the beauty supply retailer down almost 13%.
Morgan Stanley cut its rating on the stock to Underweight from Equal-weight. The firm pointed to challenges SBH will have maintaining its market share, given the headwinds low-income spenders are likely to face.
On top of these macro factors, Morgan Stanley dinged the company for being a slow mover in building out its omnichannel sales infrastructure.
SBH dropped $1.71 to close at $11.75. Shares ended just off an intraday 52-week low of $11.52 set during the session. Thursday’s drop extended a recent downtrend, with SBH retreating 38% so far in 2022.
Notable New High
On a weak day for the market, discount closeout retailer and grocery store chain Grocery Outlet (GO) received a boost. Investors bet that cash-strapped consumers would migrate to the lowest-cost options in the face of higher inflation and a shaky economy.
Shares of GO jumped $1.59, or 4%, on the day, ending the session at $40.45. The stock also reached an intraday 52-week high of $40.64.
The advance in GO came even as grocery store chain Kroger dropped following its quarterly report, as margin concerns outweighed better-than-expected earnings and revenue.
Thursday’s action added to a recent upswing for GO. The stock has climbed almost 10% over the past month. Looking longer-term, shares have advanced almost 42% so far in 2022.
Notable New Low
The downturn in the housing market also had an impact on shares of home improvement retailers Home Depot (HD) and Lowe’s (LOW). Both stocks reached 52-week lows as the prospect for higher rates and weak housing data undermined confidence in the industry.
HD slipped about 2% on the session, falling $6.27 to close at $273.46. During the day, the stock reached a 52-week low of $269.73.
After hitting a 52-week high of $420.61 in late 2021, HD has lost ground through much of 2022 so far. The stock has retreated 33% year to date.
LOW posted an even deeper slide on Thursday. The stock fell $7.40, or 4%, to end at $171.61. Shares also established a 52-week low of $170.48. LOW has fallen about 33% in 2022 so far.
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