Why Home Depot Will Move the Dow Tomorrow

The Dow Jones Industrials (DJINDICES: ^DJI  ) started the week on a quiet yet positive note, closing about 20 points higher on the day. For the most part, economic data and mergers and acquisitions activity have been the key drivers of market moves recently, but a few earnings reports remain to give investors a complete picture of what happened in the first quarter of 2014. Tomorrow, Home Depot (NYSE: HD  ) completes earnings season for the Dow Jones, and its report will give investors key information on the housing market and its ability to support Caterpillar (NYSE: CAT  ) and other related stocks that rely on a healthy construction industry.

Home Depot will issue its earnings press release tomorrow morning; results could be available as early as 6 a.m. EDT, based on when the company released its results last quarter. The home-improvement retailer has scheduled a conference call for 9 a.m. EDT to discuss its results and add color from management.

Home Depot has enjoyed strong growth lately, with the long-awaited acceleration in home prices finally spurring the home-improvement retailer's customers into action. Investors expect strong earnings growth of nearly 20% from Home Depot on solid sales gains, and the company has already given guidance for similarly strong gains throughout 2014.

The threat, though, is that the increase in home prices could prove short-lived. By some accounts, much of the activity in the housing market is coming not from traditional family buyers but rather from institutional investors buying up an increasingly scarce commodity -- demonstrated by the fact that new-home construction has generally lagged behind the overall housing market. For Home Depot, a lot depends on whether these real-estate investors intend to turn the properties around in a short time frame or rent them out for an extended period before returning to the market. Rental properties don't spur the same kind of home-improvement purchase activity that home sales do, so Home Depot won't want to see that trend take root.

From a broader perspective, Home Depot should give investors in the Dow Jones Industrials a look at construction activity, perhaps leading to viable conclusions regarding residential construction and the commercial side of the business. Caterpillar sells equipment that traditional homebuilders use, but it also has commercial-builder buyers that count on a more broad-based expansion throughout the construction sector. Good numbers from Home Depot could support the bullish thesis for Caterpillar as well.

Investors will want to see just how bad Home Depot's winter quarter was, but they're really looking for early guidance on how the key spring season is going. If spring finally thaws out the entire U.S. economy, it could spell big gains for Home Depot and the entire Dow Jones Industrial Average.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2963597, ~/Articles/ArticleHandler.aspx, 7/28/2014 2:38:44 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement