U.S. stocks fell broadly on Thursday as rising oil prices above $100 a barrel and surging Treasury yields heightened inflation fears, prompting traders to price in a 70% chance of a Federal Reserve interest rate hike next week.
Wall Street finished Thursday’s trading session lower as mounting energy costs and bond market pressures weighed heavily on equities. The S&P 500 lost 44.16 points, or 0.58%, to close at 7,592.20 points, while the Nasdaq Composite dropped 167.15 points, or 0.64%, to 26,086.19. The Dow Jones Industrial Average fell 313.64 points, or 0.60%, to settle at 52,067.02.
The downturn followed economic data showing that the U.S. producer price index increased in line with expectations in August, driven by a rebound in the cost of energy products. Investors now turn their attention to Friday’s consumer price data for a clearer picture of household inflation pressures.
Crude Oil Prices Surge Amid Conflict and Supply Disruptions
Global energy markets remain deeply unsettled by the ongoing U.S.-Israeli war on Iran. Supply routes through both the Strait of Hormuz and the Red Sea have faced severe disruptions. Following military strikes that included the U.S. destruction of five Iranian tankers, Brent crude jumped 6% to $107 a barrel.
The jump in oil prices has severely impacted fuel and shipping costs across the domestic economy. Gasoline prices in the United States have climbed about 32% from a year ago to $4.22 per gallon. Meanwhile, diesel prices reached $5.94 overnight.
President Donald Trump noted that the conflict is likely to keep energy costs elevated through the U.S. midterm elections in November.
Treasury Yields Climb to Multi-Year Highs
In the bond market, yields surged across multiple maturities, putting additional downward pressure on stock valuations. Yields on 10-year Treasury notes climbed to their highest level in nearly three years, while 30-year yields reached a peak not seen in more than 19 years. Yields on 2-year Treasury notes also hit their highest point in over two years.
“Yields are going up at the short end of the curve because the Fed is probably going to hike in the next couple months. Yields are going up at the long end of the curve because of debt and deficit issues, and sticky inflation.”
Ross Mayfield, investment strategy analyst at Baird
Analysts point out that these elevated borrowing costs directly reduce equity valuations while making operations more expensive for businesses and consumers alike.
Federal Reserve Rate Hike Expectations Strengthen
The combination of sticky inflation metrics and surging oil prices has dramatically shifted expectations for monetary policy. According to the CME FedWatch tool, traders now see a 70% probability that the Federal Reserve will raise benchmark interest rates by at least 25 basis points at its policy meeting next week, up from roughly 64% prior to Thursday’s economic reports.
Despite the broader market retreat, individual equities saw varied movement. Heavyweight chipmakers such as Nvidia and Micron Technology lost ground and weighed on the S&P 500, whereas Apple rallied a day after launching a $1,999 iPhone.
