As Housing Slows, Where Will the Market Go?

Oscar Hidalgo

A reduced sale sign tops an advertisement for an exisiting home in Los Angeles Wednesday August 23, 2006. Sales of previously owned homes plunged in July to the lowest level in 2 1/2 years and the inventory of unsold homes climbed to a new record high, fresh signs that the housing market has lost steam. (AP Photo/Oscar Hidalgo)

Fed Chairman Ben Bernanke dealt with many questions from Congress Wednesday about the ways risky mortgages will impact the overall economy, but the debate goes on: Will the housing slowdown stunt stocks' earnings growth? Craig Hester, chief executive officer of Hester Capital Management, and Todd Salamone, director of research at Schaeffer’s Investment Research, joined Bill Griffeth on "Power Lunch" to debate the impact housing will have on stocks in the future.

Hester pointed out that subprime lenders and homebuilders have already felt the housing impact. He urged investors to pick stocks selectively. “This is an earnings-driven, stock pickers’ market,” Hester said. “A broad economic slowdown would be an earnings risk.”

Salamone argued that the jury's still out on how housing will impact stocks, but sees upside in the broader market. “Caution suggests bad news is priced into the market,” said Salamone, adding that “the markets have bottomed and the reward is much greater than the risk.”