The 30-year Treasury yield hits a near 20-year high... What higher yields mean for stocks... Kevin Warsh's first test... Homebuilders still aren't feeling great... What folks are missing... Get ready for volatility later this week...
That didn't take long...
Yesterday, we wrote about rising bond yields – both in the U.S. and globally. And we cited our colleague and Ten Stock Trader editor Greg Diamond, who said that the 5.15% level for the 30-year U.S. Treasury was a key level to watch.
And just a day later, we've already breached that level...
Today, the yield on the 30-year Treasury rose to 5.18%, hitting the highest level since July 2007. At this level, Greg predicts a "floodgate of bond selling" – which will push yields even higher.
We're already seeing that from foreign governments...
In data released by the Treasury Department, China reduced its Treasury holdings for the eighth time in the past 12 months to the lowest level since 2008. And Japan reduced its holdings of U.S. government debt to the lowest level since September.
China and Japan are two of the three largest holders of U.S. government debt. And they're both reducing their positions.
All in all, rising yields tend to be bad news for stocks...
As Willie Delwiche of Hi Mount Research showed in a recent Substack post, stocks tend to underperform in environments when yields are rising. Here's a look...
Delwiche shared that over the past quarter-century, the S&P 500 Index has an average annual return of negative 3.6% when yields rose in the previous six-month period.
That's well below the S&P 500 in all periods. And when yields were falling over the previous six-month period, the index did better still... averaging a 14.6% annualized return.
Said another way, if you invested $100 in the S&P 500 at the close on December 31, 1999, you'd have more than $400 today. And if you'd only bought and held when yields were falling, you'd have a little more.
But if you only bought and held during rising-rate environments, you'd have lost money.
At the end of the day, if rates keep rising, that'll be a hard headwind for this bull market to overcome.
That's what we saw today... All three major U.S. indexes were lower, with the Nasdaq Composite Index falling the most because of the technology sector's sensitivity to interest rates.
Kevin Warsh's first test...
Warsh is set to be sworn in as the new chairman of the Federal Reserve on Friday. That will give him a little more than three weeks before his first policy meeting in June.
The market doesn't expect the Fed to move rates in Warsh's first meeting... or even until December, according to the CME FedWatch tool.
But that doesn't mean the next few months will be smooth sailing.
As Delwiche highlighted, "Markets tend to test new Fed chairs." Within the first six months of a new Fed chair's tenure, the Dow Jones Industrial Average has a median max drawdown of 10% and an average decline of 15%.
Delwiche also shared that the last three Fed chairs have all seen peak drawdowns of more than 6% during their first 12 months in their position. Outgoing Chair Jerome Powell saw stocks fall up to 19% within his first 12 months back in 2018.
And for Warsh, that clock begins ticking on Friday.
Moving on to sentiment in the housing market...
Yesterday, the National Association of Home Builders' ("NAHB") Housing Market Index showed that builders are still pessimistic about the housing market.
The Housing Market Index rose to 37, improving from 34 in April. But it remained below the key level of 50 where builders are feeling good about their prospects. And all three of the index's components – current sales patterns, six-month sales expectations, and future buyer traffic – remain below the 50 level.
Zooming out, homebuilder sentiment is still around its lows over the past 10 years.
Elsewhere, home-improvement retailer Home Depot (HD) reported its first-quarter results this morning. Both revenue and earnings came in slightly ahead of Wall Street's estimates. CEO Ted Decker said in the press release...
The underlying demand in our business was relatively similar to what we saw throughout fiscal 2025, despite greater consumer uncertainty and housing affordability pressure.
Decker is likely glad the housing situation didn't get worse... But Home Depot needs it to get better. As we wrote in the May 5 Digest...
Home Depot shares are down more than 8% this year and are 26% lower from their September high. The stock now sits near its lowest level in more than two years.
Today, Home Depot shares rose less than 1%, which remains within touching distance of that multiyear low.
But the next positive step for the housing market could be on the way...
In that same May 5 Digest, we noted that sales of newly built homes picked up in March. And today, the National Association of Realtors reported that pending home sales were up 1.4% in April from the prior month and rose 3.2% from April 2025.
Those are a couple small positives for the housing market. And there's one more to watch...
As our colleague Brett Eversole wrote in the May 13 issue of True Wealth Systems Market Extremes, housing affordability has taken a turn for the better. From Brett...
Housing affordability is a combination of three numbers... income, mortgage rates, and home prices. When prices and mortgage rates soared, housing affordability crashed. You can see it in the chart below...
When housing affordability is at 100, it means the median income can afford the median-priced home. When it's at 150, it means the median income can afford 1.5 times the median-priced home.
Now, homes cost a lot more than they did from about 2009 to 2020. But housing affordability is now back in line with its historical norms.
It is true that housing affordability crashed a few years ago, when the pandemic-era buying frenzy met with surging interest rates. But that's no longer the case today. More from Brett...
The average housing-affordability level between 1986 and 2009 – before the aberration of the 2010s – was 125. That's just barely above today's level of 116.
In other words, compared with its normal history, U.S. housing is already back to a typical level of affordability. It simply isn't true that no one's able to afford a home.
Again, the affordability index isn't only about home prices. Houses still cost a lot of money. But median incomes are now rising faster than median home prices, rather than the other way around.
When more people can afford a home, it's a good sign the housing market will thaw. And if affordability continues trending in the right direction like Brett showed, that should release Home Depot and other housing stocks from their underperformance.
We're set up for volatility over the rest of the week...
Tomorrow afternoon, the Fed will release the minutes from its April policy meeting. That'll offer some insight into where the central bank's voting members stand on the economy, and possibly give more reasoning from the "dissenters" on why they want to do away with the Fed's most recent rate-cutting trajectory.
And after the close tomorrow, AI darling Nvidia (NVDA) releases its first-quarter earnings. Investors will be watching closely for clues on the AI ecosystem, as well as the company's business in China – after CEO Jensen Huang traveled with President Donald Trump to the country last week.
Nvidia is the largest stock in the world by market cap, commanding an 8% weighting in the S&P 500 and a 14% weighting in the Nasdaq 100 Index. That alone will bring some volatility. As Greg wrote in an update to his Ten Stock Trader subscribers today...
With this stock being one of the more important stocks in the world (if not the most important) we could certainly see some volatility in both directions.
If Nvidia reports another blowout quarter, the semiconductor industry's red-hot rally since March could continue.
But if Nvidia's report shows any cracks in the AI story – even something as small as a slower growth rate – it could bring on a wave of selling across the entire ecosystem.
And that's what we've got our eyes on next.
New 52-week highs (as of 5/18/26): Atlas Energy Solutions (AESI), Alpha Architect 1-3 Month Box Fund (BOXX), Chord Energy (CHRD), Costco Wholesale (COST), Cisco Systems (CSCO), Datadog (DDOG), Enterprise Products Partners (EPD), Cambria Foreign Shareholder Yield Fund (FYLD), Monster Beverage (MNST), Plains All American Pipeline (PAA), Palo Alto Networks (PANW), Pembina Pipeline (PBA), Invesco Oil & Gas Services Fund (PXJ), Union Pacific (UNP), Valaris (VAL), and Valero Energy (VLO).
In today's mailbag, feedback on yesterday's Digest, where we noted the exuberance in AI and tech stocks right now... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"I totally agree with you about the market being crazy overextended. People are NOT investing any more, they are gambling on hopeium!... And AI companies are spending like drunken sailors on capex! And everyone has FOMO! The same thing happened in 1929 and that didn't end well either! A reasonable investor would look at this with [an unbiased] eye and take chips off the table. AKA know when to fold 'em!" – Subscriber Jon M.
All the best,
Nick Koziol
Baltimore, Maryland
May 19, 2026
