US Treasury Yields Hit 2007 High, Spotlighting Vulnerable Stocks
US Treasury yields have pushed into uncharted territory, reaching levels not seen since before the financial crisis. On Tuesday, the 30-year Treasury yield climbed to 5.327%, its highest since 2007, while the 10-year reached 4.739%. This surge in long-term interest rates has put a spotlight on stocks exposed to housing and expensive growth companies.
Home Depot, D.R. Horton, Lennar, Tesla, and Palantir are five stocks that analysts believe will be affected by this shift. Home Depot's second-quarter results are due before the US open, with expectations of $4.73 a share in earnings on $47.2 billion of revenue. However, Oppenheimer analyst Brian Nagel warns that there is little evidence of a sustained home-improvement recovery.
The housing market remains weak, with D.R. Horton cutting its revenue forecast in July due to higher mortgage rates and weaker affordability. Lennar's second-quarter average selling price fell to $371,000 from $389,000 a year earlier, while revenue declined to $7.94 billion. The company has relied on incentives to support demand but may struggle with profitability if long yields remain elevated.
Tesla's exposure is different, as its share price depends heavily on expectations for future businesses including robotaxis and autonomous driving. Higher risk-free yields make these distant earnings less valuable in present-value terms, while making bonds more competitive with growth stocks.