The stock market was having a generally negative day on Wednesday, with all three major market indexes down by 1% or more at 2 p.m. EST. But mortgage leader Rocket Companies (NYSE:RKT) was a big exception, with shares higher by 9%.
There are two catalysts that could be propelling the Rocket Mortgage and Quicken Loans parent higher today.
First, Rocket just launched a national directory of mortgage brokers on its website, which gives potential borrowers who want to work with a local independent mortgage broker a way to start their mortgage process through Rocket’s platform. In short, it gives buyers more choice, which could ultimately increase loan volume from a subset of the mortgage borrower population who haven’t been using Rocket’s platform.
Second, you may have noticed that we’re seeing big short squeezes in the market. If you haven’t, take a look at the price action in stocks like GameStop and AMC Entertainment. You can read this primer on short squeezes, but the general idea is that these companies were some of the most heavily shorted stocks in the market, and big short-sellers are now being forced to cover their positions.
While Rocket isn’t nearly as big a short-seller target as some other companies, it is still one of the more heavily shorted stocks in the market. At the end of 2020, Rocket had short interest of 31.4%, which indicates that nearly one-third of the shares available to trade were sold short.
Of these two news items, only one is material to long-term investors. While short squeezes are temporary, the launch of a mortgage broker directory could certainly be a catalyst for increased origination volumes on Rocket’s platform.
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.
View more information: https://www.fool.com/investing/2021/01/27/heres-why-rocket-mortgage-stock-is-soaring-today/