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“Capitalism is brutal. It’s survival of the fittest. What’s a successful business? More money coming in than going out.” – Ken Langone

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After starting the week with declines, equities are poised to trade lower again today, with the Nasdaq and semis specifically driving the weakness. Futures on the S&P 500 are indicating a 0.4% decline at the open, while the Nasdaq trades down over 1%. Long-term US Treasury yields are moving higher and hitting 52-week highs once again, while crude oil is fractionally higher with WTI trading at just under $85 per barrel. Gold is fractionally lower, and Bitcoin is flat.

This morning’s weakness has largely been attributed to added uncertainty in the Middle East as each side escalates the rhetoric and a ship in the Strait of Hormuz was struck by a projectile, causing a fire and injuring a crew member. That would make sense if crude oil prices were trading significantly higher. However, prices are up less than 1%, so that wouldn’t explain a 1%+ decline in the Nasdaq and a multi-percentage-point decline in semis. The weakness in semis also comes at a bad time as the SOX just barely managed to close above its 50-day moving average (DMA) yesterday for the first time in a month.

Asian stocks were mixed in Tuesday’s session. The Nikkei fell 2.5% while South Korea returned from its three-day weekend and fell 1.6%. Chinese stocks moved the other direction, though, managing fractional gains. Unlike US futures, Asian equities did react to the Hormuz headlines, which turned what had been a positive session lower.

In Europe, ZEW Economic sentiment for both Germany and the European economy came in better than expected, but short-term headlines have stocks in the region trading lower. The STOXX 600 is down 0.5% and on pace for its fifth down day in a row, led lower by Italy (-0.6%) while Spain rallies 0.3%.

In terms of data, Import and Export prices were both weaker than expected, while Housing Starts also missed as last month’s surge in multi-family units reversed. Building Permits managed to beat expectations, though.

Home Depot (HD) co-founder Ken Langone once said capitalism is brutal, and it’s been pretty brutal on the company recently as well. This morning, the company is getting a respite after reporting better-than-expected EPS and revenues and reiterating guidance. The stock is up about 2% in response, which would put it just above its 50-DMA but still below the 200-DMA. Over the last year, though, the stock has been stuck in a well-defined downtrend with lower highs along the way.

The primary weight on the stock has been rising interest rates, as the 10-year yield has trended steadily higher and hit a 52-week high of 4.74% this morning. As the CFO noted this morning, high rates are keeping customers on the sidelines when it comes to large DIY purchases.

It’s not only the last year that has been tough on HD. Over the last five years, the stock has essentially gone nowhere. Just over five years ago on 8/16/21, the stock closed at $335, and yesterday it closed at just under $338. Not only that, but based on yesterday’s closing price of $337.88, the stock closed above that level on 52% of trading days in the last five years and below that level on 48% of trading days. It doesn’t get much more evenly split than that!

HD is lagging the market by a wide margin over the last five years, but even among sectors, there hasn’t been a lot of alpha generation. Over the last five years, the S&P 500 is up 74%, but only three sectors are outperforming, and of those, Energy and Technology are the only two that are meaningfully up more than the S&P 500. At the other end of the performance range, Real Estate is fractionally lower over the last five years (once again, higher interest rates are a primary culprit), while five other sectors have seen gains of less than half the broader market.

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