Why Wayfair, Dollar General, and Five Below Stocks All Popped Today

Stocks soared in the first trading day of President Trump's second term, and some of the biggest winners today were Wayfair (NYSE: W), Dollar General (NYSE: DG), and Five Below (NASDAQ: FIVE).

There wasn't any company-specific news on these stocks. Instead, they rose for macroeconomic reasons and the response to Trump's actions in his first day on the job.

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Notably, Trump did not enact any tariffs, despite a promise to do so, which could indicate a cooling in his view of import taxes, or at least a willingness to come up with a clear, balanced plan on the matter.

Additionally, Treasury yields fell in Trump's first day, a sign that investors believe they may have overreacted earlier, sending bond yields up on fears of inflation returning under Trump due to tariffs, mass deportations, and other policies he promised during the campaign.

Indeed, 10-year Treasury yields were down 0.8% to 4.57% as of 2:27 p.m. ET, and that and the general market sentiment led Wayfair up 8.8%, while Dollar General gained 5.2%, and Five Below added 4.8% at the same time.

Image source: Getty Images.

Discretionary stocks get a break

Consumer discretionary stocks like these three have struggled in recent years, as their customers have been pressured by inflation and higher interest rates.

Dollar General and Five Below tend to cater to lower-income customers who are more sensitive to prices and their own discretionary income. Wayfair, meanwhile, sells higher-priced goods, but its business tracks closely with the housing market, which has also suffered due to elevated interest and mortgage rates.

Existing-home sales are down by about 30% from pre-pandemic levels, which has reduced demand for home furnishings, as those are correlated with home sales, since buying a new home typically comes with buying new furniture. Similarly, elevated interest rates have also made it difficult to borrow money for home renovations, which has contributed to weakness in home furnishings demand for Wayfair.

Federal Reserve rate cuts haven't been effective at lowering longer-term interest rates, due in part to wariness in the bond market over Trump's policies. However, if mortgage rates now decline, that would be a clear positive for Wayfair.

In its second-quarter earnings call, CEO Niraj Shah said that lower mortgage rates and a pick-up in the housing market would benefit the company.

Wayfair reported a 2% decline in revenue in the third quarter to $2.9 billion, though it did narrow its generally accepted accounting principles (GAAP) net loss. In January, the company said it was pulling out of the German market, the latest step in efforts to cut losses and invest in its highest-return opportunities.

Meanwhile, Dollar General has faced a wide range of headwinds, including stiff competition from Walmart, and its profits have fallen even as revenue has been steady, due to margin pressure and inflationary challenges to its customer base. Inflation relief and lower interest rates would give a boost to demand, helping the stock to recover after its plunge last year.

Finally, Five Below is in a similar position to Dollar General, though it sells strictly discretionary goods, rather than the groceries that the discount retailer focuses on. Five Below's business model of primarily carrying items that are $5 or less like toys, games, accessories, and candy make it sensitive to consumer spending and factors like inflation and interest rates. Like Dollar General, Five Below's profits have fallen even as it's continued to expand, driving revenue higher.

Can these stocks keep climbing?

Wayfair, Dollar General and Five Below are all down sharply from their earlier peaks and have struggled in the current consumer spending environment. However, there's a good argument that these stocks are bargains if the macroeconomic winds shift. If interest rates continue to come down and inflation cools, look for these stocks to keep climbing. Eventually, those tailwinds will have to show up in the financial results, but they could help drive a recovery in these stocks in the near term.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool recommends Five Below and Wayfair. The Motley Fool has a disclosure policy.