Red-Hot Homebuilder Stock Sends Warning Signal for Investors

A red-hot homebuilder stock has recently raised concerns for investors, according to Ritholtz Wealth Management CEO Josh Brown. D.R. Horton, a prominent homebuilder, exceeded expectations in its fiscal third quarter with earnings per share of $3.90 on $9.73 billion of revenue. Analysts had predicted earnings of $2.79 per share and revenue of $8.39 billion. Initially, investors reacted positively to the news, causing the stock to surge and reach a new all-time high of $132.30. However, the stock quickly changed course and ended the day in the red.

Josh Brown suggests that the reversal in stock performance indicates a loss of momentum for D.R. Horton, rather than any negative surprises in the earnings report. He warns against the dangers of stocks experiencing a rapid rise followed by a sudden reversal. Despite D.R. Horton’s impressive 40% increase in stock value this year, the real estate market has been negatively affected by rising interest rates. However, homebuilders have managed to report strong results due to a slowdown in existing home sales. In fact, homebuilder stocks and ETFs have outperformed the broader market, as seen in the 30% jump of the SPDR S&P Homebuilders ETF (XHB) year to date.

Josh Brown cautions that the influx of momentum money into stocks like D.R. Horton may lead to unpredictable future performance. He advises investors to be cautious and wait for the stock to cool off before making any knee-jerk reactions.