Stocks closed lower for a third straight session Tuesday as market participants fretted about sky-high bond yields and the ongoing war in Iran. A sell-off in chip stocks also weighed on sentiment.
At the close, the blue-chip Dow Jones Industrial Average was down 0.2% at 53,343, the broader S&P 500 was 0.7% lower at 7,691, and the tech-heavy Nasdaq Composite was off 1.3% at 26,289.
Treasury yields also finished the day lower, but not before the 30-year yield hit a fresh 19-year intraday high.
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Bond yields are rising even as the recent batch of soft inflation and jobs data lowers the odds of a September rate hike, says Daniela Hathorn, senior market analyst at Capital.com.
“Instead, the long end is responding to persistent inflation risks, heavy government borrowing and growing competition for capital — including debt issuance associated with the AI investment boom,” she explains. “That creates an uncomfortable environment for equities because financial conditions can tighten even without the Fed raising rates.”
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Higher oil prices are only adding to this inflation risk. Today, front-month West Texas Intermediate crude futures rose 0.5% to $84.94 per barrel after President Donald Trump said there are currently no talks happening between the U.S. and Iran and no plans to start them.
Bond yields weigh on chip stocks
Tech stocks were a notable area of weakness on Tuesday, due in part to higher borrowing costs. Semiconductor stocks, in particular, took a beating, with the iShares Semiconductor ETF (SOXX) slumping 5.0% as fund heavyweights Nvidia (NVDA, -2.3%), Micron Technology (MU, -7.0%) and Advanced Micro Devices (AMD, -4.3%) sold off.
Chip stocks have rebounded in recent weeks, with SOXX rising nearly 11% for the month to date through Monday’s close following a 21% drop in July.
Housing data disappoints
Higher borrowing costs are also weighing on the housing market, as evidenced by today’s economic data.
According to the Census Bureau, housing starts fell 12.5% from June to July, to a lower-than-expected 1.24 million. This is down 13.5% year over year.
Separate data from the National Association of Realtors showed pending home sales fell 2.3% from June to July, hitting their lowest level since January.
“Housing disappointed in July,” says Bill Adams, chief U.S. economist at Fifth Third Commercial Bank. “The big headwind from high mortgage rates looks likely to persist into 2027.”
Adams adds that buyers also have more options right now as folks who delayed selling their homes when mortgage rates started rising “are gradually accepting the new normal and listing their homes, providing buyers more options outside of new construction.”
Home Depot takes aim at Amazon
Home Depot (HD, -0.1%) Chief Financial Officer Richard McPhail called out “frozen housing conditions” in the home improvement retailer’s earnings call this morning.
“While consumer uncertainty and housing affordability continue to pressure demand for larger home improvement projects, we remain focused on what we can control, our strategy of driving our core and culture, delivering a frictionless interconnected experience and winning the Pro,” explained McPhail.
In its fiscal second quarter, Home Depot said its Pro segment outperformed DIY (do-it-yourself) and posted positive comparable store sales. Total comparable store sales for the company rose 1.7% in Q2 — the biggest increase since 2022 and higher than the 0.9% rise Wall Street anticipated. Earnings and revenue also beat expectations.
The comparable store sales number was impressive, says David Wagner, head of equity and portfolio manager at Aptus Capital Advisors, but his attention is more focused on the retailer’s three-hour delivery announcement.
“Home Depot announced it’s launching express delivery nationwide, promising orders within three hours or less,” Wagner explains. “It’s a direct shot at Amazon/Walmart-style speed competition, aimed at capturing the ‘I need this part now to finish the project today’ pro and DIY customer — a use case where Home Depot has a structural edge (2,300+ stores close to where people live) that pure e-commerce players can’t easily match.”
With big-ticket renovations still on hold due to higher mortgage rates, Wagner says this move echoes the broader theme of the quarter: “Home Depot is leaning hard into speed and convenience to win the smaller, more frequent project spend that’s currently driving growth.”
Klarna sinks 23% after earnings
Elsewhere on the earnings calendar, Klarna (KLAR) plunged 22.8% after the buy now, pay later firm reported earnings.
While KLAR beat on the top and bottom lines for its second quarter, it lowered its full-year outlook for gross merchandise volume (GMV) — a key metric for fintechs — due to “a more measured view of European volumes in the second half, particularly in Germany, our largest market by volume,” the company said.
Klarna also said its chief financial officer and chief marketing officer will step down early next year.
