US Stocks Decline for Third Consecutive Session, Semiconductor Shares Reverse Recent Gains

US Stocks Post Third Day of Declines Amid Rising Bond Yields and Inflation Fears

The US stock market continued its downward trend for the third consecutive day, weighed down by rising bond yields and concerns over entrenched inflation. The S&P 500 Index fell 0.7%, while the tech-heavy Nasdaq 100 Index lost 0.6%.

The Philadelphia Stock Exchange Semiconductor Index, known as the SOX, was little changed, down from an earlier gain of 1.9%. Meanwhile, the retail-favored Roundhill Memory ETF, ticker DRAM, rose 0.9%.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The S&P 500 had ended a choppy Monday session slightly below where it started, as rising yields, hot inflation, and elevated oil prices curbed investors' appetite. Treasury yields continued their ascent Tuesday, with the 30-year benchmark approaching 5.20% and the 10-year rising past 4.65%.

The leg up in yields drove the cost of capital higher, which will dampen equity valuations during a week when investors will get a number of consumer bellwethers.

The S&P 500 has shed about 2% during its three-day losing streak. On Tuesday, index decliners beat gainers by about 1.7 times.

BTIG Chief Market Technician Jonathan Krinsky recommended underperforming consumer-linked stocks, citing the potential for a "counter-trend bounce" in stocks like Nike Inc. and Tractor Supply Co. Software stocks had advanced earlier on Tuesday but erased those gains to fall 1%. The iShares Expanded Tech-Software Sector ETF, ticker IGV, was down about 19% since the end of September as of Monday's close.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

West Texas Intermediate crude oil was down about 0.8% at around $108. President Donald Trump threatened to resume strikes on Iran in the coming days as part of the push for a deal to end the war. On Monday, he had called off a new bombardment of Iran after Saudi Arabia and other Persian Gulf allies wanted more time to pursue diplomacy.

"Stagflationary macroeconomic environments don't necessarily hobble a country's stock market," Ed Yardeni, president and chief investment strategist at Yardeni Research, wrote in a Tuesday note. That's as long as "companies can grow profit margins nonetheless."

For some market watchers, doubts are creeping in. "We're not bearish yet, but becoming increasingly more cautious on the second half," Wells Fargo Securities equity analyst Ohsung Kwon wrote in a note. He cited increasing supply of stocks due to initial public offerings, along with risk from the midterm elections, inflation, and fiscal pressure. Kwon noted that the S&P 500 fell more than 10% in the second half of midterm years 71% of the time, versus 44% in other years.

Home Depot Inc. swung from losses to gains after reporting mixed earnings, with comparable sales missing expectations. Business has been hurt by elevated interest rates and high housing prices, and as shoppers defer large projects.

Citigroup Inc. fell 2.0% after a downgrade from CFRA's Kenneth Leon. He wrote that the Iran conflict "could trigger tail risks including inflationary pressures and lower consumer confidence." If the US economy were to slow, borrowing would likely ease, hurting credit card income and commercial loan activity.