Stock markets experienced fluctuations Wednesday, initially showing some gains based on hopes for a resolution in the Middle East conflict and the free flow of oil through the Strait of Hormuz. This optimism briefly led to the S&P 500 erasing earlier declines. However, this positive sentiment was short-lived as oil prices reversed course and rose sharply, pushing up US bond yields and rekindling inflation concerns.
Brent crude, which had seen declines in previous sessions due to diplomatic hopes, climbed 3.86% to $103.08 per barrel, while West Texas Intermediate (WTI) crude gained 1.81% to reach $92.16 per barrel. This sudden spike in oil prices caught investors off guard and was attributed to a reassessment of the progress in US-Iran talks, with analyst John Kilduff noting a lack of "substance" from recent meetings. Geopolitical tensions were further exacerbated by Iranian President Masoud Pezeshkian's defiant stance at the UN, stating Tehran would never "bend at the knee" to the United States.
The rising oil prices contributed to a significant jump in the benchmark US 10-year Treasury yield, which reached 5.11%, its highest level since 2007. This increase in borrowing costs is seen as a negative for the economy and stock prices. Federal Reserve Governor Michael Barr's comments suggesting that "further policy adjustments are likely to be needed" to control inflation further fueled concerns that the Fed would continue to hike rates, with traders now seeing a 71% chance of a rate hike in the next policy meeting. A surprisingly strong report on US business activity, which indicated the strongest growth in five years but also rising costs, added to inflation worries.
By the end of Wednesday, Wall Street major indices closed lower. The Dow Jones fell 0.68% to 51,511, the S&P 500 slid 0.75% to 7,706, and the Nasdaq shed 1.13% to 26,936. European markets also lost ground, with Frankfurt down 0.7% and Paris losing almost half a percent, while London finished flat. Meta Platforms saw a 1% rise after a positive reception for its "Muse" AI assistant, while Alphabet dropped 3.8% and Amazon fell 2.2%.
