Which stocks gain the most from interest rate cuts? – Magic Post

As markets continue their AI-fueled march to new highs, it’s easy to ignore some of the stocks that are lagging behind in the rally.

When large-cap stocks like Advanced Micro Devices Inc. Nasdaq: AMD It rises by 25% and adds $80 billion to its market capitalization in one sitting, so who has time to focus on the laggards?

But one area of ​​the market that has lagged could soon get a boost from the Fed’s easing interest rate policy: home improvement.

Home Depot Company New York Stock Exchange: HD Lowe’s Enterprises, Inc New York Stock Exchange: Low It has underperformed the S&P 500 this year. Could lower interest rates finally spur these two stocks?

The cold housing market of 2025 has dragged Home Depot and Lowe’s

The S&P 500 has returned more than 13% year-to-date, but HD and LOW stocks have traded in the red numbers next to their indexes for most of 2025. While both companies posted strong profits (and actually grew comparable sales in the second quarter), the stocks have lagged, mainly due to rising interest rates and slowing home sales.

Retail has always been a cyclical industry, but this factor is especially evident in home improvement stores, since renovations often require customers to tap into their home equity or use home equity lines of credit (HELOCs).

The high interest rate environment has not only crippled home sales, but has also silenced the home renovation and construction industries. Professional builders are paying higher interest rates on loans, and homeowners are putting off their projects until they can secure better terms on their equity. Combine this environment with rising prices for materials like lumber and steel due to tariffs, and we get a recipe for a frozen housing market.

Home Depot held its fiscal second-quarter 2026 earnings conference call before the market opened on Aug. 19, reporting results slightly below expectations despite comp sales growth of 1% year-over-year (YOY).

The company cited weak demand for large projects as a reason for the failure.

Lowe’s reported more of the same during its second-quarter 2026 fiscal release before hitting the market on August 20, anticipating a flat market due to a healthy but cautious consumer base.

Lowe’s DIY customer base makes it more sensitive to evaluating changes

One of the main differences between the two companies is where the bulk of their sales come from.

Home Depot has taken strategic initiatives to improve its supply line to professional contractors and builders, with the Pro segment now representing more than 50% of total revenuesaccording to Stansbury’s research.

The company acquired SRS Distribution in 2024 and GMS in 2025 to enhance the availability of heavy-duty materials and products in its Pro ecosystem. Since contract construction jobs are not as price sensitive as do-it-yourself home remodeling, the expanded Pro segment gives Home Depot some protection from interest rate sensitivity.

Additionally, Home Depot generates just under $160 billion in annual sales, nearly double Lowe’s’ $83 billion.

Lowe’s, on the other hand, focuses on the DIY home renovation market, where approximately 70% of its revenue comes from discretionary spending rather than contract jobs. This market is more vulnerable to interest rates and economic sentiment, which may explain why LOW shares are down 10% over the past 12 months compared to just 5% for HD.

Last year, Louis A Total house strategy To improve Pro market share and accelerate online sales. The company is implementing an AI framework to help with recommendations and product marketplace to bring in new sellers and expand its product catalog.

Despite its recent expansion into Pro, Lowe’s remains at a capital disadvantage to Home Depot and is more dependent on cyclical business trends. These spreads are likely why HD trades at a higher multiple to LOW, but they also present an opportunity for the smaller company.

If interest rates fall quickly, Lowe’s could see high sales growth due to the release of “trapped” stocks and home sales. Home Depot’s sales growth is more stable, but Lowe’s could offer more upside potential if mortgage rates fall faster than expected.

Volatile charts indicate caution in the short term

Investors with a high risk tolerance may prefer Lowe’s’ upside over Home Depot’s stability.

However, their shares still face an uphill battle in 2025. Hopes for a 50 basis point rate cut led to a slight rally for both stocks in late summer, resulting in a bullish golden cross formation.

However, this proved to be a false signal, as both stocks reversed course immediately after the Fed announced a 25 basis point cut. Low and HD stock prices have fallen below the 50-day SMA and are now approaching a crucial level above the 200-day SMA.

No matter which stock you prefer, the smartest move may be to stay in “wait and see” mode. More flexible monetary policy will take time to trickle down to the broader economy, even if the Fed pursues a faster pace of cuts.

Watch high and low quality stocks as they approach the 200-day SMA and oversold condition on the Relative Strength Index (RSI). These will be the key short-term metrics to watch before mortgage rates start to decline.

Before you consider Lowe’s Companies, you’ll want to hear this.

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