Key Highlights

● Home Depot slipped on Friday to close at $290.74, one of the Dow's weaker names, with no company-specific news.

● The 10-year Treasury Yield stayed near the 24-year high it reached on Wednesday, and Mortgage rates tend to track it.

● Sherwin-Williams edged lower to $319.36 and the ITB home construction fund fell as housing-linked stocks lagged.

● Rate futures point to a strong chance of another Fed hike in December, with a smaller chance in October.

Home Depot (NYSE:HD) slipped on Friday to close at $290.74, one of the weaker names in the Dow Jones Industrial Average, which rose 423.31 points to 51,654.95. There was no company-specific news. The home-improvement retailer instead moved with housing-related stocks, which struggled as Treasury yields stayed elevated.

The S&P 500 gained 46.18 points to 7,811.54 and the Nasdaq Composite added 172.83 points to 27,366.17.

Yields and the housing chain

The 10-year Treasury yield edged slightly higher on Friday and remained near the 24-year high it reached on Wednesday. Mortgage rates tend to track the 10-year yield, so a high reading raises the cost of buying a home and of borrowing against one. That ripples through the housing chain, from builders to the retailers that sell lumber, appliances, paint and tools.

Homebuilders felt it: the ITB home construction fund fell on Friday, according to market data. Sherwin-Williams (NYSE:SHW), another Dow member tied to housing and renovation activity, also edged lower, to $319.36.

Home Depot's Business depends on both professional contractors and do-it-yourself customers. Large remodeling projects are often financed with home Equity loans or credit, which become more expensive as rates rise.

A hawkish Fed

There is little sign of relief on rates. The Fed raised rates in September for the first time since 2023. Minutes from that meeting said another increase would likely be appropriate by year end, and some officials framed the hike as insurance against Inflation staying stubbornly high. Fed Governor Christopher Waller said Thursday he anticipates additional hikes to bring inflation back to the Fed's goal, adding: "For at least the near term, policy will be focused on the inflation side of our mandate."

Rate futures point to a strong chance of another hike in December, with a smaller chance at the October 27–28 meeting.

Consumers are uneasy

Friday's consumer survey added to the pressure. The University of Michigan's preliminary October sentiment index fell to 46.3 from 48.1, a five-month low, with a sharp drop in views of current conditions. Inflation expectations also rose. "Frustration over cost-of-living continues to mount," said Joanne Hsu, director of the survey.

The market's Leadership lay elsewhere. Real estate led the S&P 500 on Friday, but that strength came largely from tower stocks after SpaceX (NASDAQ:SPCX) agreed to buy nationwide wireless spectrum, rather than from housing. Health care and software also rallied.

For the week, the Dow added 477.99 points, while defensive sectors such as utilities and staples outpaced the rest.

The pressure on rate-sensitive stocks was visible in money flows too. US equity funds saw $5.11 billion of outflows in the latest week, the first since mid-September, while bond funds attracted a record $19.78 billion, according to market data. Small caps, which are often more exposed to borrowing costs, logged a fifth straight weekly decline, with the Russell 2000 ending Friday at 2,806.98.

Wednesday's Consumer Price Index and Bank Comments on Mortgage Lending Will Matter for Housing Stocks

Monday, October 12, is Columbus Day: stocks trade, but the Bond Market is closed, pausing Treasury trading. The September consumer price index arrives Wednesday, October 14, and could move yields. The Fed's next meeting is October 27–28. Producer prices and retail sales follow on Thursday, offering a read on spending at building-material stores. Bank Earnings begin Tuesday with JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS), Citi (NYSE:C) and Wells Fargo (NYSE:WFC), whose comments on mortgage and consumer lending will be relevant for housing.