On February 5, 2018, the S&P 500 Index (SPX) fell 4.1% to 2,648.9, a decline of 7.8% from its all-time high of 2,872.9 on January 26, 2018. During the same period, the stock price of home improvement companies Home Depot (HD), Lowe’s Companies (LOW), Williams-Sonoma (WSM), and Bed Bath & Beyond (BBBY) have fallen 11.6%, 9.1%, 8.0%, and 8.9%, respectively.
The increase in bond yields, the rise in inflation, the increase in labor wages, and also the expectation of Federal Reserve raising interest rates have created weakness in the broader equity markets, leading to a fall in home improvement stocks. The majority of Wall Street analysts are expecting three rate hikes this year with the first rate hike expected to be in March.
2017 was a good year for home improvement companies with Home Depot, Lowe’s, Williams-Sonoma, and Bed Bath & Beyond returning 41.4%, 30.7%, 6.8%, and -45.9%, respectively. However, since the beginning of 2018, only Lowe’s returns have been positive at 5.0%, while Home Depot, Williams-Sonoma, and Bed Bath & Beyond have fallen 3.4%, 5.0%, and 6.7%, respectively. In comparison, the S&P 500 Index and the SPDR S&P Homebuilders ETF (XHB) have returned -0.9% and -6.3%, year-to-date, respectively. XHB has invested more than 22.0% of its holdings in home improvement and furnishing companies.
Next, we’ll look at analysts’ recommendations for home improvement companies.