Major stock indexes experienced declines on Monday as rising oil prices and surging Treasury yields fueled concerns about inflation and the prospect of additional interest rate hikes from the Federal Reserve. The S&P 500 fell 0.9%, the Nasdaq 100 dropped 1.6%, and the Dow Jones Industrial Average decreased by 0.7%. This downturn erased the S&P 500's monthly gains and impacted the tech-heavy Nasdaq 100 significantly. Analysts noted that the broader market struggled to gain traction due to these factors, with the bond market and upcoming economic data, particularly labor market figures, being key areas of focus.
Oil prices rose significantly after US-Iran talks reached an impasse, with Brent crude nearing $108 a barrel and US crude rising 3.5% to $95.60. This increase in energy costs heightened fears that inflation could accelerate, leading traders to increase bets on Federal Reserve rate hikes. Markets now imply a roughly 70% chance of the Fed hiking rates for a second consecutive meeting in October. The Fed had already raised rates earlier in the month for the first time since 2023.
Treasury yields climbed to multi-year highs, reflecting these inflation and rate hike concerns. The 10-year Treasury yield advanced nine basis points to 5.26%, reaching its highest level since mid-June 2007. The 30-year Treasury yields also hit their highest levels since mid-May 2004, and the two-year Treasury yields saw their largest monthly rise since February 2023. This "higher yields for longer" narrative is putting pressure on equities, with some analysts noting that stocks may not be able to rally until yields fall.
Corporate news saw Nvidia Corp. boost its share buyback plan by a record $150 billion, signaling confidence in its growth, and its shares rose. However, other tech stocks generally struggled. Meta Platforms Inc. introduced its Meta Enterprise Platform, and Snowflake Inc. plans to raise $3.5 billion from convertible debt. The increasing cost of capital is emerging as a key risk for AI-linked companies, particularly those with significant borrowing and spending. Geopolitical risks, particularly surrounding the Strait of Hormuz, continue to contribute to market volatility, pushing oil prices and bond yields higher.
