Why Rocket Companies Dived by 22% This Week
What happened
This week was a tough one for the stock market generally, but it was a really tough set of days for Rocket Companies (NYSE: RKT) investors. Shares of the sprawling mortgage specialist tumbled by over 22% across the Monday-Friday period, according to data compiled by S&P Global Market Intelligence. This exacerbated a general decline in the stock that's been a trend over the past few months.
So what
Rocket Companies wasn't exactly a stock on fire as it shot into March. At the end of last month, the company unveiled fourth-quarter results that landed short of analyst estimates for both revenue and profitability.
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Meanwhile, we're in an environment where the Federal Reserve is preparing to raise key interest rates. And those hikes might be sooner and steeper than expected; on Thursday we learned that the annual inflation rate rose by 7.9% in February, setting a new 40-year high mark for the second time in as many months.
Needless to say, mortgage businesses are highly dependent on interest rates. When rates are low, would-be homeowners are more willing to take the plunge with a big home loan. In such an environment, lenders also do well with refinancing, an activity that generates fees from borrowers looking to secure a lower rate. But when rates start climbing, potential homeowners get shy, and the refinancing business dries up.
Now what
In the wake of those fourth-quarter results, several analysts lowered their price targets on Rocket Companies stock. We shouldn't be surprised to see more downward revisions this month, as we're likely to get more gloomy developments with inflation due to the impact of the war in Ukraine. It's safe to say, then, that Rocket Companies will remain a stock in disfavor for the immediate future.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
