Pressure from the US bond market hit a new level on Wall Street on Wednesday after a surprisingly strong report on the economy raised worries about inflation, while oil prices halted their slide. The squeeze caused US stocks to sink and the S&P 500 fell 0.8% after finishing the prior day just 0.4% below its record set last month. The Dow Jones Industrial Average dropped 352 points, or 0.7%, while the Nasdaq composite sank 1.1% from its own all-time high.
All told, the S&P 500 fell 58.61 points to 7,706.03. The Dow dropped 352.10 to 51,511.59, and the Nasdaq composite sank 308.24 to 26,936.04.
Bond yields climb
Stocks wilted after the yield on the 10-year Treasury jumped to 5.10% from 4.96% late on Tuesday, which is a considerable move for the bond market. High yields undercut prices for stocks and other investments, while also slowing the economy by making it more expensive for everyone to borrow money.
Wednesday's jump briefly sent the 10-year yield near 5.14%, back to where it was in 2007 before the global financial crisis caused yields to crater. Yields have been climbing since bottoming out in the COVID pandemic, and they've accelerated recently because of worries about high inflation, the US government's heavy debt and other concerns.
Worries about inflation got a jolt on Wednesday morning after a preliminary report suggested growth in US business activity surged to its strongest level in more than five years. That's an encouraging signal but indicates the economy may have plenty of fuel for more inflation.
The report also suggested costs for businesses are leaping at the fastest rate in four years, in part because of more expensive oil, according to Chris Williamson, chief business economist at S&P Global Market Intelligence. That could mean businesses will pass those higher costs onto their customers in coming months.
Oil prices rebound
Oil prices are high because of worries that the war with Iran will keep oil bottled up in the Middle East for a long time.
The price for a barrel of Brent oil to be delivered in November rose 3.9% to $US103.08 on Wednesday. That reversed a decline for Brent, which had been falling since it neared $US110 last week. Talks are continuing with mediators between US and Iranian officials, but nothing concrete has come of it yet.
Brent oil to be delivered in December, where most of the trading in the market has moved, rose 2.8% to $US98.12 per barrel.
Even with its recent decline, the price for a barrel of Brent remains much higher than the roughly $US72 it cost before the war with Iran began.
Fed signals more interest rate increases
Inflation has remained so stubbornly high that the Federal Reserve raised its short-term interest rate last week for the first time in three years in hopes of slowing down increases in the cost of living.
Fed Governor Michael Barr said in a speech on Wednesday that further hikes "are likely to be needed" to get inflation to the Fed's 2% target. Traders now see better than a 50% probability that the Fed will hike its federal funds rate at each of its next two meetings, in October and December, according to data from CME Group.
So far, strong growth in profits for US companies has helped support the US stock market despite higher interest rates and more expensive oil.
Global markets slip
In stock markets around the world, indexes slipped across much of Europe and Asia.
Stock indexes fell 1% in Hong Kong and 0.4% in Shanghai ahead of Chinese President Xi Jinping's state visit to Washington, which is kicking off on Wednesday, US time.
The leaders are expected to attempt to steady fragile ties in their third meeting since Trump returned to the White House. That is despite the world's two largest economies seeking the upper hand on artificial-intelligence developments and trade, while pushing for leverage in persistent hot spots like Iran and Taiwan.
