The nesting trend may be bad news for airlines, movie theaters, and hotels. But it has fueled a rally in household-related stocks, and could still support more gains, according to a report published Thursday by Leuthold Group.
Shares of companies in home construction, furnishings, building products, and durable goods (think washing machines and fridges) have rallied more than 77% off their March lows, well above the
gains. But Leuthold senior analyst Kristen Perleberg argues that the stocks should continue rising as the nesting theme propels spending, with scant competition from things like travel or entertainment away from home.
“Stuck at home, consumers are directing their dollars toward indoor and outdoor home upgrades—be it small or large projects or just more ‘stuff’ to make at-home life more enjoyable,” she writes.
While the stocks have already notched impressive gains, they may have more room to run. “With few signs of the pandemic abating, these spending trends are likely to perpetuate due to working from home, significantly less travel, and reallocating discretionary funds that can’t be spent on ‘experiences.’ ”
Consumer spending is far from healthy. And with Washington recently failing to extend supplemental unemployment benefits, millions of people are likely to tighten spending on discretionary items.
Bed Bath & Beyond
(ticker: BBBY) said in July that it plans to close 200 stores, 21% of its total, over the next two years. Its stock is down 29% this year. Kitchenware retailer Sur La Table filed for bankruptcy protection in July, while
Pier 1 Imports
went bust in February.
But the store closures and bankruptcies may be more a reflection of shoppers shifting to online channels and big-box chains. Indeed, while personal-consumption expenditures are down 7% from prepandemic levels, Perleberg writes, spending in areas like furnishings and durable household items is up nearly 7%.
New home sales are recovering. Sales of single-family houses hit a seasonally adjusted annual rate of 776,000 in June, nearly 14% above the rate in May, and 7% above June 2019, according to the U.S. Census Bureau. One reason: Home buyers are more likely to be high-wage earners or retirees—groups that haven’t been hit as hard by the recession and job losses, according to Perleberg.
Strength in the housing market is fueling gains for building products companies, which supply things like heating, vacuum and air-conditioning systems, doors, and bathroom fixtures. Home-furnishings companies are doing well as households spruce up their living space. And durables companies—making everything from appliances to mattresses—are benefitting from “dollars flowing to all things housing,” she says.
Exchange-traded funds may be the most efficient way to capture these themes in one basket. The
iShares U.S. Home Construction ETF
SPDR S&P Homebuilders ETF
(XHB) each hold a broad mix of residential construction, building materials, and home improvement stocks. They’re up about 22% and 15%, respectively, this year.
Hoya Capital Housing ETF
(HOMZ) holds builders and home-improvement chains like
(HD), along with real-estate investment trusts such as
Extra Space Storage
(EXR). The ETF is up 1.7% this year, after falling precipitously in March, but it has rallied 75% off its lows.
The nesting trend could take a breather if the economy springs back to life and we start going out more as the pandemic eases up. Staying home won’t be as popular in that scenario. We hope it comes to pass soon.
Write to Daren Fonda at email@example.com
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