Higher rates are pummeling consumer discretionary stocks — here's the damage: Chart of the Day

Higher interest rates are hitting Consumer Discretionary ( XLY ) stocks hard.

A combination of K-shaped consumer spending and higher borrowing costs is weighing on the sector, which includes everything from fast food chains to automakers, clothing retailers, and home improvement stores.

"Most consumers are either indebted or marginal savers, and the stocks that cater to those customers are suffering," Steve Sosnick, chief strategist at Interactive Brokers, told Yahoo Finance.

The 10-year Treasury yield ( ^TNX ), a benchmark for mortgage rates and other borrowing costs, recently climbed to its highest level since 2002 . On Monday, it hovered around 5.30%.

The S&P 500 Consumer Discretionary ETF has moved inversely with rising rates, falling roughly 8% during the same period, as seen on Yahoo Finance's AlphaSpace chart .

Meanwhile, the S&P 500 ( ^GSPC ), powered by blowout AI tech earnings, sits less than 1% from its record high.

With the exception of e-commerce and cloud giant Amazon ( AMZN ), which is viewed by Wall Street as an AI play, the top five holdings in XLY are negative year to date.

"Higher interest rates certainly are weighing on companies whose products tend to require financing, like autos," Sosnick said.

Shares of traditional automakers Ford ( F ) and GM ( GM ) are down roughly 2% year to date. Shares of EV giant Tesla ( TSLA ) are down 17% since the start of January.

"Commodity price increases and interest rate changes all continue to add to our costs," Tesla CFO Vaibhav Taneja noted during the company's earnings call in July.

Housing market-tied retailers have seen a pullback in spending on big-ticket items as the cost of borrowing has increased. Home Depot ( HD ) stock is down 18% while peer Lowe's ( LOW ) has declined 25% year to date.

In August, Lowe's CEO Marvin Ellison noted that the home improvement chain's target demographic tends to be middle-income Americans, with disposable income and home equity. He added , "The caveat to all of that is that this consumer is being cautious."

Meanwhile, some of the sector's poor performers are tied to a combination of lower store traffic and company-specific strategies, such as fast food chain McDonald's ( MCD ) and sneaker maker Nike ( NKE ). Those stocks are down more than 20% and 45% year to date, respectively.

Ines Ferre is a Senior Business Reporter for Yahoo Finance covering the US stock market, publicly traded companies, and commodities.