Do the stocks of home improvement stores do well when the market is up or down? Does the real estate market have a large effect on them?

Directly, home improvement stores do well when the real estate market is doing well as home prices are rising. However, since the rise in home prices is far outstripping the rise in people's incomes...housing is likely overpriced once again overall. Indirectly, the stock market affects the real estate market. As you can imagine, when people's 401k and IRA balances are higher and jobs have been more stable from a rising market, they buy more and are willing to pay more. When stocks dive and their retirement account balances shrink and either their jobs are cut or people they know get their jobs cut, they quit buying or buy a whole lot less and when they buy they pay far less. Thus, home improvement stocks get affected by both the real estate market and stock market (since the biggest companies are publicly traded) and because a declining stock market can dampen the real estate market.

People say that real estate isn't correlated to the stock market, but that's not entirely true. It's highly influenced by it.

Hope that helps answer your question, Bekka. Thanks for your post.

Most of these stocks are overvalued or in a bubble, much like Home Depot (HD) right now.