Why Home Depot Will Move the Dow Tomorrow

The home-improvement giant is the Dow's barometer of housing-market activity. Will Home Depot give an all clear for a new Dow record run?

Feb 24, 2014 at 4:30PM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Monday was a strong day for the Dow Jones Industrials (DJINDICES:^DJI), with the average finishing the day up about 105 points, as investors concluded that fears of a more dramatic correction than January's minor pullback were unwarranted. With poor housing data contributing to doubts about the economy's future growth potential, Home Depot's (NYSE:HD) earnings report tomorrow morning could confirm or contradict the negative sentiment in industries related to the housing market. The impact could go well beyond the home-improvement supply industry to include stocks linked to non-residential construction, including rising Dow component Caterpillar (NYSE:CAT), and crane-builder Manitowoc (NYSE:MTW).

Home Depot will issue its earnings release Tuesday morning, with investors expecting to see results around 6 a.m. EST, based on the timing of press releases from past quarters. The company will follow up its release with a conference call scheduled to start at 9 a.m. EST.


Currently, investors expect somewhat mixed results from Home Depot, with revenue likely to ease slightly, but earnings continuing to move upward. So far, the company hasn't shown major signs of succumbing to a major slowdown in the housing industry, but the stock has stopped moving upward with the ferocity it did during much of the recovery from the financial crisis.

Shareholders need to remember, though, that unlike most retailers, the winter season isn't the most important time of year for Home Depot. By contrast, the coming spring season is a big time for home improvement, and Home Depot has busily started ramping up for what it hopes will be a growth opportunity for the company. Even though weather effects have hurt other companies this winter, Home Depot might actually benefit from the cold weather in the long run, as shoppers with cabin fever eagerly wait for the growing season to begin and prepare with new enthusiasm.

Results from niche competitors in home improvement have delivered strong results already, giving Home Depot investors reason for enthusiasm, as well. But even beyond the housing industry, long-dormant companies are looking for reasons to come out of hibernation and start growing again. For Caterpillar, a return to more vigorous commercial construction could finally break a slump in its construction-equipment sales, leading to a new cyclical upturn that could reward patient shareholders. Manitowoc has actually soared to all-time highs recently, and confirmation of demand on the consumer end of the construction industry could make the crane builder more confident that commercial building will follow suit.

Home Depot will move the Dow tomorrow, not just because of its reading on the important housing industry, but also because of the implications it has on construction more broadly. Strong guidance could send the Dow to new record heights, while a disappointment could well signal a much more substantial challenge to the five-year bull market in stocks.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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