The Home Depot stock leads Dow Jones index higher after Chair Powell’s ‘transitory’ optimism

The Home Depot (HD) stock is leading the Dow Jones Industrial Average (DJIA) higher on Thursday following what the majority on Wall Street view as positive signals from Federal Reserve (Fed) Chair Jerome Powell’s press conference on Wednesday afternoon.

The DJIA and the other major US stock indices have advanced between a quarter and a half percentage point at the time of writing.

As expected, the Fed’s Federal Open Market Committee (FOMC) held interest rates steady on Wednesday, but the market focused on Chair Powell’s optimism regarding inflation.

“It can be the case that it’s appropriate sometimes to look through inflation, if it’s going to go away quickly without action by us — if it’s transitory — and that can be the case in the case of tariff inflation,” Powell said on Wednesday. “I think that would depend on tariff inflation moving through fairly quickly and would depend critically on longer-term inflation expectations being rather well anchored.”

Investors know Powell was referring to the University of Michigan’s 5-year Consumer Inflation Expectation preliminary reading last Friday that saw January’s 3.2% expectation rise to 3.9% in March. In other words, Powell is not convinced that the surging inflation expectations will be enough to stop the Fed from lower rates later this year, and indeed, the central bank’s dot plot demonstrates that the FOMC still expects to cut rates by 50 bps by year-end.

The Fed still downgraded US economic growth this year, but its members still want to see more data before allowing worry to set in. Former New York Fed President Bill Dudley told Bloomberg that he viewed the dot plot as hawkish but Powell’s speech as dovish.

The Home Depot stock news

The Home Depot has been able to steady its share price this week after giving up more than 11% over the prior two weeks. The primary worry for shareholders has been how the Trump administration’s tariffs will affect the home improvement retailer’s business.

The company sources plenty of products from Canada, Mexico and China, all of which face current or coming tariffs from the administration. Trump has delayed them twice already but the President says that 25% tariffs will go into effect on Canada and Mexico on April 2. Trump added another 10% tariff to goods from China, bringing the minimum tariff on that country to 20%.

A large segment of lumber sold by The Home Depot is currently sourced from Canada, and lumber accounted for nearly 8% of the retailer’s revenue in 2023. Flooring, which accounted for nearly 6% of revenue, is also largely wood-based. Adding in building products and milling work, segments that have a lesser reliance on lumber would take the company’s affected portfolio to slightly more than a quarter of revenue.

Chinese appliances are another major segment that should see impacts, but substitution for appliances from South Korea or the US itself could stem the necessity of raising prices. However, The Washington Post reported this week that the White House is readying new broad-based tariffs on all trading partners, so South Korea might not be spared.

The tariff outlook comes at a time when The Home Depot is preparing for its annual Spring Black Friday Sale, which normally occurs sometime in April. The event is an important one for The Home Depot’s second calendar quarter and typically offers discounts on gardening supplies, outdoor furniture, and lawn care.

The Home Depot stock forecast

Home Depot stock has found its footing this week in the $340s, but only time will tell if this is a dead-cat bounce. HD stock is trading well below its 200-day Simple Moving Average (SMA), which should bring pause to most eager buyers.

HD stock needs to overtake the $384 level in order to contain the recent fallout. That, however, is unlikely to happen unless the US administration discards its current pro-tariff trajectory.

The likelier outcome is that HD will need to descend to either the $340 level, which held up on August 13, 2024, or the $324 level from May of last year. The Moving Average Convergence Divergence (MACD) remains in a bearish crossover that it entered in early February, and bulls will wait until a clear, dramatic bullish crossover is achieved.