US stock markets declined on Wednesday, with the S&P 500 falling by 0.75% to 7,706, the Dow Jones Industrial Average dropping 0.68% to 51,517, and the Nasdaq shedding 0.85% to 30,470. This widespread sell-off was primarily driven by a significant surge in bond yields across the curve, particularly at the short end, and rising oil prices, which fueled inflation concerns.
The increase in bond yields was attributed to several factors: stronger-than-expected US Flash PMI data for September, indicating robust economic activity with manufacturing at 57.0 and services at 58.7; hawkish statements from Federal Reserve officials, including Governor Michael Barr; a very weak auction of $70 billion in 5-year Treasury notes, which tailed by 3.1 basis points; and reports of a potential US diesel export ban. The 10-year Treasury yield, a key benchmark, climbed to 5.11%, its highest level since 2007.
Oil prices also contributed to the inflationary pressures, with North Sea Brent crude rising 3.86% to $103.08 per barrel and West Texas Intermediate (WTI) crude gaining 1.81% to reach $92.16 per barrel. The S&P Global Flash PMI report highlighted a sharp increase in average input costs for businesses, reaching their highest since October 2022, largely due to higher fuel prices, suggesting further upward pressure on inflation.
As a result of these factors, traders now assign a 57% probability that the Fed will raise rates by 25 basis points at each of its two remaining meetings in 2026, up from 38% just a week prior. Sectors like Communication Services, Utilities, and Consumer Discretionary were among the biggest laggards, while Energy and Industrials showed resilience. Semiconductor and memory stocks were particularly affected, potentially reversing recent gains following new AI model releases.
