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US stocks fell for a second day on October 8 as oil jumped and Treasury yields rose. Oil producers and refiners gained, and airlines lost. The rise in long-term yields also keeps mortgage rates high, which squeezes buyers of new homes from builders like D.R. Horton.
Source: MarketWatch ↗
Oil prices surge, lifting producers and refiners such as ConocoPhillips and Valero. Higher oil also raises jet fuel costs for airlines such as United and Delta.
Costlier energy raises inflation worries and the chance of more Fed rate increases. The Fed already hiked in September, the first increase since 2023, to 3.75–4.00%, and signalled another. As a result, long-term Treasury yields climb. The 10-year yield rose above 5.3% on October 7, its highest since 2002.
Mortgage rates track those yields, at 7.40% in the week to October 8, which raises monthly payments and leaves fewer qualified buyers for homebuilders like D.R. Horton.
Oil's rally on October 8 sent stocks lower for a second day. Investors worry that costlier energy will push inflation higher and force the Fed to raise rates again. The Fed raised rates in September for the first time since 2023, to 3.75–4.00%, and signalled one more increase. The same worry pushes up long-term interest rates. The 10-year Treasury yield rose above 5.3% on October 7, its highest since 2002, and mortgage rates track it closely. A higher mortgage rate raises the monthly payment on every new home, so fewer buyers qualify. D.R. Horton (DHI) depends on those buyers. Its cancellation rate was 20% in the June quarter, up from 17% a year earlier, and it cut its full-year revenue guidance to $32.5–33.0 billion.
Trading on October 8 split along fuel lines. Valero rose 4.5%, ConocoPhillips 3.3% and Exxon Mobil 2.8%, while United Airlines fell 3.4% and Delta 1.9%. D.R. Horton edged up 0.3% after a 2.5% drop the trading day before.
Why that may be wrong
D.R. Horton's 2.5% drop came on October 7, when the 10-year yield passed 5.3%, and the stock did not react to October 8's oil jump. Mortgage rates have risen about 0.37 percentage points in two weeks, more than the stock's reaction suggests. The Freddie Mac survey also lags, so orders reported on October 29 may show the full effect.
Oil could fall back quickly if the Middle East supply risk eases, pulling Treasury yields down with it. One sign would be the weekly Freddie Mac 30-year mortgage rate dropping well below 7.40% over the next few weeks of October and November. A second sign would be D.R. Horton's October 29 results showing steady orders and few cancellations despite rates near 7.4%.
The yield move may have little to do with oil. Bonds also reacted to hawkish comments from a Fed official, and D.R. Horton rose slightly on October 8. Much of the weakness may already be in the stock. Builders can also offer buyers mortgage rate discounts to keep sales going.
A similar pattern appeared on September 24. Oil jumped and Treasury bonds swung, sending stocks lower. The same oil-and-bond dynamic returned on October 8.
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