Shares of Home Depot (HD 0.94%) were down Tuesday in response to a hotter-than-expected inflation report, which further cooled off hopes that interest rates would come down soon.
Since the home improvement retailer is sensitive to interest rates, the stock fell on the news. As of 1:17 p.m. ET, it was down 1.8% after having been off by as much as 3.2% earlier in the session.
Image source: Home Depot.
No relief in sight for the housing market
Home Depot's fortunes are closely tied to conditions in the housing market, as home sales drive spending on renovations and other projects that result in a large share of its business.
The housing market has been sluggish due in part to higher interest rates, which the Federal Reserve boosted in an effort to bring inflation back under control. Tuesday morning's Consumer Price Index report showed that the inflation rate had slowed again in January, but not by as much as expected. Year over year, the overall CPI rose 3.1%, which was ahead of estimates at 2.9%. On a month-to-month basis, the index rose 0.3%, up from a 0.2% increase in December.
Core inflation (which factors out the volatile food and energy segments) was stickier than the overall rate, at 0.4% on a monthly basis and 3.9% year over year.
The Fed has a goal of keeping the inflation rate in the neighborhood of 2%, and when inflation was surging toward 9% in 2022, it began to rapidly raise its benchmark federal funds rate to combat surging prices. The rate hikes of 2022 and 2023 did help bring inflation down significantly, so the Fed expects to start trimming interest rates back once it's confident that inflation is headed toward 2%.
Tuesday's report makes it less likely that the first of those rate cuts will come soon.
What it means for Home Depot
Home Depot is certainly strong enough to withstand whatever volatility the housing market throws at it, but a rate cut ahead of the peak spring home improvement season might have given a boost to the company's performance. That's unlikely to happen now.
We'll learn more about Home Depot's prospects for this year when it reports its fiscal 2023 fourth-quarter earnings on Feb. 20.
Analysts expect revenue to fall 3.4% to $34.6 billion, and for earnings per share to fall from $3.30 to $2.76. Investors will be paying close attention to guidance to see if the company can return to growth in 2024.
