3 positive signals for Home Depot — and its shareholders — heading into 2026

The stars appear to be finally aligning in 2026 for Home Depot, one of seven favorable portfolio stocks that Jim Cramer has called buys. Although shares are down nearly 11% year-to-date, three recent developments point to a recovery for the home improvement retailer. 1. The Consumer Price Index (CPI), which was colder than expected in November, is helping the Fed cut more interest rates next year. Federal Reserve Chairman Jerome Powell has been cautious and data-dependent as he presides over three rate cuts in 2025 and three in 2024. But Powell's term as Fed chairman ends in May. Investors are betting that the Fed will have more dovish leadership after President Donald Trump makes his choice to replace Powell. Trump did not hesitate to demand lower rates. Mortgage rates, which tend to track 10-year Treasury yields, have not fallen meaningfully enough to revive the severely stalled housing market. Nationally, the average 30-year fixed-rate mortgage is still above 6%. Home Depot's success is largely due to lower rates and a buoyant housing turnover; Both may be on the way. 2. While housing costs, which account for nearly a third of total CPI, rose 3% year-on-year in November, there are signs of a modest moderation in house prices in the private sector. Lennar's fiscal 2025 fourth-quarter results showed home prices could fall to pre-Covid levels. The builder said the median home sales price in the fourth quarter was $386,000, versus a forecast of $383,900. The average sales price for all of 2025 was $390,900; That was below the 2020 price of $394,300, before Covid premiums pushed prices up to a pandemic-era peak of $479,900 in 2022. Lennar said it expects average sales prices to fall to between $365,000 and $375,000 in 2026. Federal officials have begun discussions with builders to develop a solution, Lennar said. Falling home prices and potentially lower rates are an excellent sign for Home Depot. 3. Citi upgraded shares of Sherwin-Williams to buy in another positive signal for Home Depot, with analysts pointing to a better structure in 2026. “We think existing home sales may be sensitive to small positive changes in both mortgage interest rates and consumer confidence,” analysts wrote in a Dec. 18 note to clients. Citi said the paint maker "is trending to outperform as existing home sales come off the lowest periods in recent years." Jim said that if Sherwin-Williams is a read, peer Home Depot is also a buy. However, Citi analysts lowered their price target for Sherwin-Williams to $390 from $392. Still, this represents an increase of about 20% from Friday's close. (Jim Cramer's Charitable Trust is long HD. See here for a full list of stocks.) When you subscribe 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 trading alert before buying or selling a stock in his charitable foundation's portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.