US Treasury yields surged to levels not seen since before the 2008 financial crisis on Tuesday, placing rate-sensitive equities under the microscope. The 30-year bond yield climbed to 5.327%, its highest since 2007, while the 10-year yield reached 4.739%. This move, driven by concerns over fiscal deficits, rising oil prices above $90, and heavy government borrowing, is forcing investors to reassess the appeal of long-duration assets.
Housing stocks face the brunt
Home Depot, D.R. Horton, and Lennar are among the most exposed to higher borrowing costs. Home Depot reports second-quarter earnings before Tuesday's open, with analysts expecting $4.73 per share on revenue of $47.2 billion. The company's performance is closely tied to housing turnover and renovation activity, both of which remain subdued as mortgage rates stay elevated. Oppenheimer analyst Brian Nagel told Kiplinger that while Home Depot and Lowe's are navigating the tough environment well, there is little sign of a sustained recovery in home improvement spending.
D.R. Horton offers a more direct test of how higher Treasury yields translate into mortgage rates and affordability. The builder already cut its revenue forecast in July, citing pressure from buyer incentives and higher costs. August builder confidence fell to 35, and the latest average mortgage rate stood at 6.77%, according to Reuters. NAHB chief economist Robert Dietz noted that the survey "continues to show signs of weakness in the home building market," with about 30% of builders reducing prices in August.
Lennar illustrates how affordability challenges can squeeze profitability even when sales continue. Its second-quarter average selling price dropped to $371,000 from $389,000 a year earlier, and revenue declined to $7.94 billion. The company has leaned on incentives like mortgage-rate buydowns to support demand, but these measures can erode margins. If long-term yields remain elevated, such incentives may become more common, potentially weighing on builder earnings.
Growth stocks face a valuation hurdle
Tesla and Palantir represent a different kind of risk. Their valuations depend heavily on expectations for future earnings from businesses like robotaxis, autonomous driving, and AI. Higher risk-free rates reduce the present value of those distant cash flows, making bonds more competitive with growth equities. Barron's noted on August 11 that lower inflation and borrowing costs would make growth stocks more attractive relative to interest-bearing assets. The reverse is now playing out, and Tesla's stock could face pressure if the bond selloff deepens, though vehicle demand and AI execution remain larger company-specific drivers.
Palantir combines exceptional AI growth with a rich valuation. Deutsche Bank analyst Brad Zelnick said after its latest results that Palantir was "operating several steps ahead of the rest of software" in turning AI demand into customer value, according to MarketWatch. However, strong fundamentals do not eliminate rate sensitivity. As Treasury yields rise, investors demand higher returns for holding richly valued growth companies.
These five stocks thus present two distinct tests. Home Depot, D.R. Horton, and Lennar show whether expensive money is damaging housing and household demand. Tesla and Palantir reveal how much investors are willing to pay for distant growth when long-term government debt yields more than 5%. The 30-year yield is not an automatic sell signal, but it raises the bar for stocks across the board.
For broader context, the recent slide in the TLT ETF underscores the bond market's pressure, while rising debt and yields are seen as potential threats to the equity rally. Investors are also watching chip stocks and retail data for clues on the broader market's direction.
This article is for informational purposes only and does not constitute financial advice.
