Yields Rose and Tensions With Iran Remained High. Stocks Fell.

Stocks fell again on Tuesday as bond yields rise and tensions between the U.S. and Iran remain high.

The Dow Jones Industrial Average edged down 0.22%, while the S&P 500 dropped 0.64%. The tech-heavy Nasdaq Composite underperformed, plunging 1.30%.

Concern dominated the markets as the yield on the 30-year U.S. Treasury climbed to its highest level in nearly two decades.

Foreign demand for U.S. government debt is showing signs of weakening. Treasury Department data released Monday showed that foreign holdings of Treasuries declined in June, with three of the biggest holders, the United Kingdom, Japan and China, all reducing their positions.

Several forces could determine whether the 30-year yield keeps climbing. One is the global bond market. Among them is Japan, where government bond yields moved higher after weaker-than-expected economic growth was accompanied by a hotter GDP deflator, a measure of price changes across the economy.

"Ten-year and twenty-year JGB yields pushed higher, and it spilled right over into U.S. markets, driving the long bond to new multi-year highs," Newton said.

Another threat to bonds is the possibility that the Federal Reserve may need to keep monetary policy tighter than investors anticipate, or even raise interest rates further. Deutsche Bank said markets are effectively betting on a favorable combination of resilient economic growth, record-high stock prices, limited additional central-bank tightening and manageable commodity disruptions.

A third source of pressure is increasingly important for the 30-year bond: the amount investors demand to be compensated for holding government debt for decades. Heavy Treasury issuance is testing appetite for long-term securities.

In the geopolitical scene, prospects of a deal to reopen the Strait of Hormuz remain dim. A new report claimed that the U.S. Army is considering pulling back troops from the Middle East as the impact of the Iran war becomes increasingly evident.

The Washington Post claimed that the Defense Department has already signaled it might not rebuild struck bases as they were before the war began.

The outlet went on to detail that Defense Secretary Pete Hegseth has not ordered a formal review, but the Pentagon's policy office is already conducting an evaluation. The Joint Staff and the U.S. Central Command are also considering the possibility.

Another report detailed that the country's leadership is taking steps to widen the war with the U.S. and Israel.

The Wall Street Journal cited Arab intelligence officials who claim that Tehran is seeing a "strategic shift" and have begun taking steps to "get their forces ready to widen the war."

The steps include ramping up drone and missile production, as well as conversations with proxies in Iraq, Yemen and Lebanon to escalate conflicts elsewhere in the region.