Cramer: What must happen for Home Depot to keep its 25% monthlong rally going
Home Depot was one of our biggest post-election winners. Wednesday’s 6.5% gain extended a recent hot streak and flipped the struggling stock positive year to date. The question now for patient Home Depot investors like us is whether this is the turning point we’ve been waiting for, or just another head fake. Home Depot and other housing stocks rallied on the hope that the Democratic sweep on Capitol Hill in Tuesday’s midterms could lead to an easing of America’s affordability crisis and a pick-up in the stagnant housing market. Oil prices, which have driven rekindled inflation this year, tumbled on hopes that the Middle East conflict may not worsen. Bond yields, which are sensitive to inflation expectations, also fell. “If rates come down or [the] do-it-yourself market heats up, you’re going to have the number one stock,” Jim said during Wednesday, referring to Home Depot. “We have the number one stock.” The bounce in Home Depot goes beyond Wednesday, which was also a stellar session for the overall market. It’s going to take more than a day to see whether Wall Street truly embraces what will become the Democratic majority in both the House and Senate. What we do know, however, is that Home Depot has been quietly rallying for a month. Since the 10-year Treasury yield hit a two-decade high above 5.3% on Oct. 5, the Club stock is up more than 25%. In fact, it is on pace for five straight positive weeks, which would mark its longest weekly win streak since November 2024 into the first week of December 2024. Tracking the 10-year is important because mortgage rates tend to follow the long end of the bond market yield curve. According to the Mortgage Bankers Association , the 30-year fixed-rate mortgage rose to 7.5% the week of Oct. 14 — a level not seen since November 2023. While rates have come down a couple of weeks in a row, they are still a full percentage point higher than a year ago. That has kept a lid on housing activity, which has held Home Depot back on both renovations and new construction. To be sure, management has been controlling what it can control — getting bigger with acquisitions to better serve the Pro customer, while matching and topping rival Lowe’s in same-store sales growth. HD mountain 2024-11-04 Home Depot 2-year peformance Unfortunately, we have been here before in recent years — signals that mortgage rates might start cooperating and Home Depot stock rallying off recent lows. Over the past year, Home Depot has been hitting lower highs and lower lows. That certainly tells the story of our frustration in the position. Jim believes the election outcome could pave the way for relief on tariffs, another major headwind on Home Depot stock. “The working person’s been hurt by higher gasoline. The working person’s been hurt by tariffs, including many things that are bought at Home Depot,”he said.”That’s going to be over.” While most of President Donald Trump ‘s sweeping tariffs were overturned by the Supreme Court earlier this year, and companies like Home Depot have been receiving refunds, the damage has largely been done. Prices that went up after the tariffs are not going to suddenly come down because the levies were rolled back. “While these refunds were received in the second quarter, they are being used to offset unplanned and rising cost pressures throughout the year,” Home Depot CFO Richard McPhail said during the company’s most recent earnings call back in August. One of the costs for companies and consumers that has risen sharply since the summer is oil prices as tensions in the Middle East rise and hopes for a diplomatic solution to the Iran war ebb and flow. Jim has said that the war with Iran is a wildcard. Clearly, based on Wednesday’s big drop in crude prices, traders think the election results could usher in a resolution. We’ll be debating in the coming days what to do about Home Depot stock and the rest of the portfolio as we prepare for Friday’s annual meeting. Jim and portfolio director Jeff Marks will take the stage at the New York Stock Exchange to give Club members their thoughts on where the market goes next year and where we stand on all 31 Club holdings. The livestream begins at 10:30 a.m. ET on Friday. (Jim Cramer’s Charitable Trust is long HD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
