Jim Cramer has said Home Depot is the best way to play lower interest rates, and Tuesday’s trading in the stock shows us why. To Jim’s surprise, shares of the home improvement retailer ran as high as $356 each in the morning, despite management releasing disappointing guidance for the company’s full-year fiscal 2026. Home Depot “should be down big,” Jim said on Tuesday’s Morning Meeting as shares were up modestly. If the Federal Reserve were not expected to cut rates on Wednesday afternoon, an outlook like this would be sold heavily, he explained. The stock did turn lower by more than 1% later in Tuesday’s session. That was not nearly as much as Jim had feared. Lower rates are “just gigantic for some of our stocks,” Jim said, putting Home Depot at the top of the list due to its dependence on mortgage rates and the housing market. Mortgages have not come down in a meaningful way, even after two previous rate cuts this year and three last year. Elevated mortgages have stalled housing turnover, which hurts Home Depot on the pro side — with homebuilding and the need for large-scale renovations tepid — and on the do-it-yourself side. Home Depot has said it’s about 55% pro and 45% consumer. “Households are sitting on more dry powder to use for home improvement projects than ever before, and in the past several years have tapped this equity at lower levels than usual during this period of high interest rates,” Home Depot Chief Financial Officer Richard McPhail said during Tuesday’s investor and analyst conference after providing the Street with a preliminary look at what the company forecasts for next year. Home Depot said it expects fiscal 2026 sales growth of between 2.5% to 4.5%. At the midpoint of 3.5%, the outlook missed estimates of 4.5% growth. Same-store sales — also referred to as comparables or comps in the retail industry — were seen in the range of flat to up 2%. The midpoint of 1% missed estimates for 2.3% growth. The company sees adjusted operating margin of approximately 12.8% to 13%, which at the midpoint matched estimates for 12.9%. To be sure, Home Depot reported a rough fiscal 2025 third quarter on Nov. 18 and reduced its full-year 2025 guidance. Management on Tuesday reiterated its 2025 outlook. And, in addition to the new fiscal 2026 numbers at the conference, the company looked even further out with what it called a “market recovery case,” which painted a baseline of what business could look like once a housing recovery were to take hold. In its so-called market recovery case, Home Depot sees total sales growth of about 5% to 6%; total comps growth of 4% to 5%; operating profit growth faster than sales growth; and diluted earnings-per-share growth of roughly mid-to-high single-digits on a percentage basis. “While housing is currently pressured, we believe the fundamental supports for long-term home improvement demand are strong and are in a much stronger position than they were at the beginning of the last housing recovery,” McPhail said. HD YTD mountain Home Depot YTD While there was no time frame on these long-term projections, we do find them helpful to see where management thinks the business can go. “The market liked to see what the bull case can be,” Jeff Marks, director of portfolio analysis for the Club, said Tuesday morning. “For now, it’s just a hostage to interest rates,” he added, referring to Home Depot stock. Shares of Home Depot have dropped 11% year to date after an over 12% gain in 2024. The stock was dragged down with the rest of the market on President Donald Trump ‘s early April announcement of wide-ranging trade tariffs. It did eventually come to life ahead of this year’s first Fed rate cut in September. But it turned lower again — just like last year — when the September cut and another one in October did not lower bond yields that much. Mortgages tend to follow the 10-year Treasury yield, which is currently higher than it was on the day of the September cut. Bottom line It has been a frustrating ride in Home Depot stock for the Club. However, if the Fed were to cut rates more aggressively next year or cut rates earlier than expected — and mortgages finally move lower in a meaningful way — Home Depot’s guidance for fiscal 2026 and beyond might need to be raised. While reiterating our buy-equivalent 1 rating right after last month’s earnings, we did lower our Home Depot price target to $420 per share from $440. That PT still implies more than 20% upside to Tuesday’s close around $346. As we noted on earnings day, the issues plaguing Home Depot are macroeconomic, not due to management missteps. As a result, we said at the time that investors will likely be rewarded for taking some pain and leaning into the stock, as we did that morning shortly after the print, with shares down sharply. (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 . 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