This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Global Macro: The Home Depot-Bernanke Disconnect

Stocks in this article: HD XHB RSP

NEW YORK ( TheStreet) -- Federal Reserve Chairman Ben Bernanke testified on Wednesday in front of Congress explaining that the Fed may or may not rein in quantitative easing in upcoming sessions, based on the future economic situation. That brought a much needed pullback to equity markets, and introduced further uncertainty over the state of the economy for the rest of 2013.

Meanwhile, earlier this week, Home Depot (HD - Get Report) released strong earnings and raised its outlook. The company believes that the housing market, if not the entire economy, is on the rebound.

The first chart below is of Home Depot over S&P Equal Weight ETF (RSP). The pair shows the relative strength of Home Depot versus equity markets over a two-year span.

Home Depot has seen a large uptrend during the housing recovery. Beginning this year, however, the pair has traded sideways.

As housing data and unemployment have been mixed, the pair has fluctuated within a range. As the economy continues to pick up steam, albeit at a gradual pace, the pair should see a breakout of its range.

The next chart is of SPDR Homebuilders ETF (XHB) over S&P Equal Weight ETF. The chart reiterates what was seen above.

The housing recovery has helped cyclical companies that cater to the housing industry, and housing has improved along with employment. Individuals are more flexible to buy and sell houses in order to move in between cities that offer the best job prospects. When prospective employees were unable to sell their properties for reasonable prices, they were more likely to stay put and accept wages or jobs below their capabilities.



The next chart represents the Treasury 30-year rate. The Federal Reserve has enacted unorthodox measures in order to drop rates and spur long-term investment.

The rise of Home Depot and the housing market has fallen in stride with 30-year rates and the accumulation of mortgage-backed securities by the Fed.

With Bernanke reiterating on Wednesday that a change in policy would add instability to markets, it looks like rates will stay suppressed for the better part of 2013, maybe into 2014. That could play a part in Home Depot projecting a rosier outlook than had been expected.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,678.70 +6.10 0.03%
S&P 500 2,057.09 +5.27 0.26%
NASDAQ 4,771.7630 +13.8840 0.29%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs