Daily Stock Market Reports

Why Shares of Rocket Companies Are Falling Today

What happened

Shares of Rocket Companies ( RKT -11.53% ) had fallen nearly 5% as of 11:51 a.m. ET today for no obvious reason, although the stock looks to be cooling off after a nice run following the large mortgage originator’s earnings report at the end of February.

So what

Rocket missed on earnings estimates for the fourth quarter of 2021, which continued to reflect a slowing mortgage market, but the stock rallied in the weeks following possibly due to guidance. Rocket guided for closed loan origination volume in Q1 of $52 billion to $57 billion, which is higher than in the fourth quarter of 2019 before the pandemic and ultra low rate environment set in.

Cylinders lined up in descending order left to right.

Image source: Getty Images.

Rocket also guided for its gain-on-sale margin, which hit 2.8% in Q4, to stabilize and potentially rise as high as 3.1%. The company also reported it increased its market share in the long-term mortgage market to 8.8% in 2021.

The stock had been on a nice run since its earnings report, but with interest rates set to rise and the refinancing boom over, many investors still believe the mortgage market has peaked.

Now what 

Rocket’s quarter wasn’t all bad and the fact that the company is picking up market share and potentially seeing gain-on-sale margins stabilize is a good thing.

But with the Federal Reserve set to increase its benchmark lending rate and inflation concerns the highest they’ve been in decades, that could slow mortgage transactions and create a much weaker mortgage market, which would have a big impact on Rocket’s business.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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