US stocks declined as an increase in oil prices led to further selling in bonds, pushing the 30-year Treasury yield to its highest level since 2004. The S&P 500 was poised to lose most of its early-week gains, with futures dropping 0.6%, and Nasdaq 100 contracts slid 1%. Brent crude rose to above $105 a barrel. The dollar was also on track for its longest winning streak since May, fueled by expectations of higher interest rates for longer.
The sharp rise in yields has intensified focus on the Federal Reserve's rate path. Swaps now fully reflect three quarter-point rate hikes over the next year, with significant hedging for a fourth increase. Joachim Klement at Panmure Liberum noted that rising yields will eventually impact stock markets by increasing the cost of capital and the discount rate for future cash flows.
The week's stock rally, which saw the Nasdaq 100 reach a record high, is faltering due to concerns that elevated bond yields are eroding the appeal of equities and pressuring valuations. The ongoing bond selloff is attributed to renewed anxiety over persistent inflation and growing fiscal risks. Simon Wiersma at ING Bank suggested that while higher yields might not trigger a broad equity bear market, they are likely to cap valuation expansion and make earnings growth more crucial.
