Why Home Depot and Lowe's Fell After the Fed Held Interest Rates Steady.

After Kevin Warsh's first meeting as the new Federal Reserve chair, it was announced that the federal funds rate would remain unchanged. The vote was unanimous, with inflationary pressures in full focus.

The central bank made this announcement at 2 p.m. ET on June 17. By the time the stock market closed two hours later, shares of Home Depot (NYSE: HD) and Lowe's Companies (NYSE: LOW) had each fallen between 2.5% and 3%. By market close the following day on June 18, both retail stocks had basically clawed back their losses.

However, investors should still learn a lesson from this volatility driven by market reactions.

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Macro factors have an impact on the housing market

The impact that interest rates have on the housing market is straightforward. When mortgage rates are elevated, like they are now with the 30-year fixed rate at 6.47%, it raises the cost to purchase a home. The monthly mortgage payment goes up.

Additionally, homeowners who were able to lock in a lower mortgage rate might be more inclined to stay put, creating a lock-in effect. This can reduce the housing supply that's for sale.

Home Depot and Lowe's are in the thick of this tighter backdrop. "With the higher rates, housing turnovers remain low," Home Depot CEO Ted Decker said on the Q1 2026 earnings call. "Industry is not expecting a lot of growth in housing turnover this year, and new construction starts and sales are also trending down."

Investors were hoping lower rates were on the docket. This would support a more favorable environment that can drive consumers to Home Depot and Lowe's stores.

It's a good idea to temper expectations for a while, though. Half of the participants at the latest Fed meeting believe that there will be at least one interest rate hike in 2026. That's not what shareholders in these companies want to hear. A higher-for-longer interest rate climate won't exactly give households the confidence they need to spend big on large renovation projects.

These businesses will have to ride out this cycle

Home Depot generated revenue of $41.8 billion in Q1 2026, while Lowe's collected sales of $23.1 billion during its fiscal first quarter. These are the two biggest operators in the massive home improvement industry. Targeting both DIY and professional customers, these businesses sell products ranging from power tools and appliances to lawn equipment and flooring.

Both companies do well when the broader macroeconomic backdrop is firing on all cylinders, characterized by high consumer confidence and robust discretionary spending behavior. That's not the case right now. Home Depot and Lowe's each forecast same-store sales growth of just 1% (at the midpoint) this fiscal year.

Shareholders will have to be patient as they wait for the fundamentals to improve.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.