We’re buying 45 shares of Home Depot at roughly $399 each. Following Tuesday’s trade, Jim Cramer’s Charitable Trust will own 145 shares of HD, increasing its weighting to 1.65% from 1.14%. Dow stock Home Depot has dropped $18 per share — or a little more than 4% — since making a new high of $418 last Wednesday. Some of this decline is probably due to profit-taking since the stock has gone straight up since Sept. 6. That was the day when the August nonfarm payrolls report showed softer-than-expected hiring growth, which paved the way for the Federal Reserve’s jumbo interest rate at its Sept. 18 meeting. Central bankers ushered in their easing campaign with a 50-basis-point reduction in the target range for the fed funds overnight bank lending rate to 4.75% to 5%. HD YTD mountain Home Depot YTD As noted in our initiation on Sept. 4, Home Depot’s business is heavily tied to interest rates. The idea is that when mortgage rates fall from their cycle highs to somewhere around 5% to 6.5%, a new housing turnover cycle begins. Housing turnover is the main driver of Home Depot’s business. When people sell their home to buy a different one — especially an older one — they usually pursue projects to fix it up and make it look better. Home Depot is the No. 1 place professionals and do-it-yourselfers go to buy the equipment and products needed for those projects. This is why we believe Home Depot is a great play on the Fed rate-cutting cycle. Supporting our view is a home improvement survey published late Monday by the UBS Evidence Lab showing that DIY demand is bottoming. However, our thesis has taken a pause more recently. That’s because long-term government bond yields have been climbing higher ever since the policy rate cut on concerns that the Fed may have made a policy mistake by going 50 basis points. There are also worries the market got ahead of itself on how aggressive the Fed will be with rate cuts before year-end since recent economic data has been pretty good. Mortgages tend to follow the 10-year Treasury yield — and have moved out of the sweet spot that spurs housing formation. We want to, however, take the other side of that trade because the economy is still growing solidly and inflation is coming down, making this recent dip in Home Depot on rising bond yields a buying opportunity. (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.
We’re buying more shares on the dip in this Fed rate-cut stock tied to housing
