Dow sinks by more than 400 points as spiking yields weigh on stocks

Stocks fell sharply Tuesday afternoon, as US Treasury yields surged to their highest levels in over a decade, worrying investors that higher borrowing rates could further stall the housing market.

The Dow fell 430 points, or 1.3%, notching its lowest close since June and turning lower for the year. The benchmark S&P 500 declined 1.4% for its lowest close since May. The Nasdaq Composite lost 1.9%, extending the late summer selloff.

The Fed signaled last month that it could introduce one more hike this year and keep rates elevated through next year. Investors are starting to worry that the housing market could be the next domino to fall and potentially trigger a recession.

While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasuries. When Treasury yields go up, so do mortgage rates.

Stocks have marched higher for most of this year, as AI excitement took hold on Wall Street and powered tech stocks to stratospheric heights.

But that rally petered out in August, as strong economic data had investors worried that a resilient economy and piping hot labor market would lead the Federal Reserve to hold interest rates higher for longer to tamp down inflation.

Treasury yields have spiked and the US dollar has surged in the weeks since the Fed's late-October meeting, continuing to chip away at the stock market's gains from the spring. Stocks tend to suffer when government bond yields are elevated, since it means investors can get high returns on less risky assets.