Yields and Oil Drive the Market Down
Both rising bond yields and higher oil are hurting stocks right now, and they are tied together. The 10-year Treasury yield sits at levels not seen since January 2025. The 30-year is above 5.3%, the highest since 2007. Global yields keep climbing too, which creates headwinds for equities.
Yields are rising because of inflation pressure and higher borrowing costs. Crude oil is back above $84 a barrel, which hurts the Treasury market and pushes yields up.
Put it in context: the S&P 500 is still only about 1% off the record highs hit last Thursday. The worry is the speed and size of the move up in yields. More volatility in the yield market will drag on stocks going forward. Watch the velocity and move in yields - if the upward trend continues, it will pressure equities.
Rotation Between Chips and Software
Chip makers are losing steam. Nvidia (NVDA) is down. Memory chip makers and some semiconductor equipment makers are all lower - yet they were all higher yesterday and led the market, even though the market finished slightly negative. Software is a bit higher today after being weaker yesterday. This shows a split market where investors rotate between winners and losers day to day. That pattern may not be sustainable.
Geopolitics Back in Focus
Geopolitical tensions keep heating up. Talks between the US and Iran are not just stalling - they are non-existent. That is what the market is fixated on now. Earnings have been solid and supported the recent push to near record highs, but with little economic data and few earnings coming out, the market will focus more on geopolitics. Until talks between the two countries restart, market volatility could continue.
Home Depot Earnings and the Frozen Housing Market
Going into the report, expectations for Home Depot (HD) were low. Results:
- Comparable sales up 1.7%, but only up 1.3% in the US.
- Beat on EPS.
- Beat on revenue.
- Reaffirmed guidance for the full fiscal year.
Those are the positives. But the CFO described "frozen housing market conditions," caused by higher yields and slightly moderating wage growth. The housing market is in a rolling recession from higher interest rates. People do not want to renovate or buy a new home because supply is short and prices are still high.
The company says it is doing what it can in a downbeat environment. A reignition of housing will not come until the 30-year fixed mortgage rate drops back below 6%, which does not look likely. The stock is up just over 1% today. The options market had priced in only a plus or minus 3.5% one-day move after earnings, so volatility was muted going in.
Until yields fall, wages pick up, or the jobs market improves from a lackluster couple of months, these retail stocks may stall - moderating growth, companies handling expenses well, but a stagnant environment for the retail side.
Tech's $3 Trillion in Off-Balance-Sheet AI Commitments
A Wall Street Journal report says major tech companies have built up roughly $3 trillion in off-balance-sheet AI commitments, mostly tied to AI infrastructure buildout - data centers, chips, and input costs. The market is aware of this risk, which is why some names have pulled back: Meta Platforms (META) is underperforming, and Oracle (ORCL) has sold off significantly from all-time highs last September.
Companies disclose large capital spending on AI, but they are not showing the full extent of future spending. For Alphabet/Google (GOOGL), Meta (META), Oracle (ORCL), and others, these coming obligations are not on the balance sheet because they have not yet leased the data centers or put the money out. The obligations now outweigh the capex spent so far, and they are growing faster.
There is a circle of investments here - for example OpenAI, Nvidia (NVDA), and AMD (AMD): one side finances the buildout, but the other side must buy its chips, and back and forth. Many obligations will come due. The key questions: Will they come to fruition? Will revenue from the AI buildout over the next 5 to 10 years be enough to pay for these off-balance-sheet investments? The market is looking past the risk, betting future revenue will finance these obligations.
