The S&P 500 slipped as a global bond sell-off pushed government yields toward multi-decade highs, with Motley Fool contributors tying the move to heavy AI-related corporate debt issuance. The Dow Jones Industrial Average and Nasdaq Composite also fell. Klarna and Home Depot earnings reactions showed how the higher-rate environment is already hitting individual companies.
The S&P 500 fell 0.4% to 7,718.60, down 29.11 points. The Dow Jones Industrial Average dropped 0.5% to 53,414.25, off 271.86 points, while the Nasdaq Composite lost 0.3% to 26,506.99, down 77.07 points.
Bond yields near 20-year highs
On Motley Fool's Hidden Gems Investing podcast, Matt Frankel and Lou Whiteman said the equity slide follows a sharper move in bonds, where yields on government debt in many countries are close to 20-year highs. Frankel noted Japan's 10-year yield is at its highest level since 1996, and the U.K.'s 30-year bond is approaching a 6% yield. Whiteman attributed part of the move to investor concern over the Federal Reserve's political independence, on top of widening budget deficits across industrial economies.
AI data-center debt adds to the pressure
Frankel said hyperscale companies' capital spending is on pace to reach $750 billion this year, with estimates calling for about $1.2 trillion next year. About one-third of this year's spending is debt-funded, and Goldman Sachs forecasts that share will reach 35% next year. Hyperscalers also carry about $1.65 trillion in off-balance-sheet debt, which Frankel said has grown 8x since 2022. Whiteman pointed out that Alphabet just reported its first quarter of negative free cash flow since going public more than a decade ago.
Earnings show the fallout
Klarna Group shares fell about 21% after the company cut its full-year revenue guidance, citing currency headwinds and softer expectations in Germany. That came even as revenue grew 27% year over year and transaction margin dollars rose 42%. Home Depot shares, by contrast, edged up 0.4% after the company beat top- and bottom-line estimates in what management called a frozen housing market, helped by $730 million in tariff refunds during the quarter. Whiteman noted single-family housing starts fell by nearly 10% the same month.
Whiteman said he remains on the sidelines, waiting for clearer signs of a housing rebound before buying in.
Source: Motley Fool
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