Our Plan as Home Depot Guidance, S&P 500 Reading Raise Alarm

We’ve been upping the Portfolio’s cash levels recently following a growing number of developments warranting a more cautious posture. To that list, we can add the S&P 500 closing below its 50-day moving average on Monday night (purple arrow in the chart below), which Bob Lang sees as a “follow through to the downside.” And he’s not a fan of the bearish crossover seen with the S&P 500 MACD reading (bottom panel).

We can also add Home Depot’s HD below-consensus guidance for its current fiscal year. The company sees its EPS falling by 2% year over year to $14.94, well below the $15.65 market forecast. CFO Richard McPhail shared that he doesn't see the housing market improving in 2025 and commented there was continued pressure on remodeling projects.

To that, we can add weak guidance from Builders FirstSource BLDR competitor TopBuild BLD, which sees 2025 revenue between $5.05 billion and $5.35 billion compared to the $5.47 billion market forecast and the $5.3 billion posted for 2024.

During Home Depot’s earnings call on Tuesday morning, we’ll be interested in what it says about its outlook and tariffs. The reason is, late on Monday, President Trump shared that scheduled tariffs to hit Canada and Mexico on March 4 are “on time” and “moving along very rapidly.” Once again, we have to contemplate if Trump means to go through with those tariffs or if he is looking to extract a new deal. Time will tell, but we are also seeing Trump eye sanctions on specific Chinese companies and tightening existing restrictions on how many AI chips can be exported globally without a license.

As we wait to see how those items play out, we will be looking to see if Tuesday's February Consumer Confidence report echoes the findings in last week’s February University of Surveys of Consumers. That report showed a far larger than expected drop in the Consumer Sentiment Index to 64.7 from January’s 71.1 and the market expectation for Michigan inflation expectations data. That report also showed consumer inflation expectations jumping to 4.3% year over year, the highest reading in 15 months, given concerns inflation could surge as a result of tariffs.

February Consumer Confidence is expected to land at 102.5, down from January’s 104.1, but a larger drop would be another reason to be cautious, especially ahead of more retail earnings out next week. First Walmart WMT issued weaker-than-expected guidance last week and now Home Depot. Mix in tariffs and the odds of positive guidance surprises could be few and far between.

What We’re Going to Do

We will continue to pick our spots with our shopping list and one or two companies in the Bullpen. We will also be looking to see if the market moves back above the 50-day moving average or if it instead trends lower toward the 100-day moving average. Based on what we’re seeing on Tuesday morning; the odds favor the latter not the former but we will follow the market and today’s data. We’ll also continue to keep a close watch on other key support levels for the S&P 500.

Barring developments out of Washington, D.C. and the Trump administration, after Tuesday, the next focal point for the market will be Nvidia’s NVDA latest earnings report and guidance after Wednesday’s market close. Given recent DeepSeek headlines and speculation that Microsoft MSFT may be dialing back its data center expansion plans, something Microsoft pushed back on Monday night, our thinking is Nvidia will need to deliver results that re-assure the market a robust AI-driven ramp remains ahead.

We continue to read about companies ranging from Chipotle CMG, Booking.com BKNG, Amazon AMZN, Walmart and Carvana CVNA using AI to improve productivity and the consumer experience. Other data shows more companies implementing AI solutions and ramping up AI investments, which suggests we are still a ways away from the back half of this ball game.

However, because we are once again in an environment where even a modest weakness in a company’s results or guidance can punish its shares, Nvidia will need other deliver a meaningful beat and raise quarter. If not, because NVDA shares are the second largest holding in the S&P 500 and Nasdaq Composite, a disappointing report could be a catalyst for the market to continue its move lower. More reasons for us to proceed cautiously in the very near term.

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At the time of publication, TheStreet Pro Portfolio was long NVDA, MSFT and AMZN.