Bond yields add pressure
US stocks slipped on Tuesday after oil prices and the bond market cranked up the pressure on Wall Street.
The S&P 500 fell 0.4%. The Dow Jones Industrial Average dropped 328 points, or 0.6%, and the Nasdaq composite sank 0.8%.
They felt pressure as the yield on the 10-year US Treasury bond, which is the centrepiece of the US bond market, climbed to 5.00% from 4.97% late on Monday and briefly touched 5.04% overnight. It's been jumping to its highest level in years, and Monday was the first time it breached 5% since 2023.
Higher yields mean everyone from the US government to households to businesses must pay more in interest to borrow money, which slows the overall economy. They also make people less willing to pay high prices for stocks because they can earn more from sitting in bonds, which are considered safer investments.
"The result is a market that must work harder to generate earnings growth just as investors become less willing to pay premium valuations for that growth," according to Darrell Cronk, president of Wells Fargo Investment Institute.
The last time the 10-year yield was consistently above 5% was around the turn of the millennium, and it's been a long march back since it bottomed out below 0.50% in 2020. The pace has accelerated since February, after the war with Iran sent oil prices much higher.
That raised worries about high inflation potentially lasting for years, which are layering atop longstanding concerns about the US government's massive debt level and other issues.
Oil climbs further
Oil prices rose further on Tuesday following several sharp swings in the morning.
The price for a barrel of Brent crude, the international standard, climbed 2.9% to settle at $US108.75.
It remains well above its $US72 level from early July and from before the war with Iran began in February, as doubt continues about whether the fighting will allow oil tankers to freely exit the Persian Gulf anytime soon through the Strait of Hormuz.
Inflation remains high enough that the widespread expectation is that the Federal Reserve will announce on Wednesday that it will hike the federal funds rate for the first time in three years.
Traders are still betting on a slight chance that the Federal Reserve could hold off on hiking interest rates, though. If it does, the market could swing because investors may see it as a sign that the Fed is less committed to getting inflation lower.
Fed officials will also release forecasts for where they see interest rates heading in upcoming years, providing another opportunity to inject uncertainty into the market.
Consumer stocks fall
On Wall Street, stocks of companies that depend on customers having enough spare cash to spend on their products fell to some of the sharper losses.
Elsewhere, stocks enmeshed in the cryptocurrency industry sank after the US Senate voted to block legislation creating a new regulatory framework for crypto, while demanding more limits on President Donald Trump's investments.
Coinbase Global fell 10.1%, and Robinhood Markets lost 3.4%.
AI stocks steady
Several artificial-intelligence stocks meanwhile held steadier following their worldwide slide the day before, after leaders of the AI industry called for a slowdown in development to address safety issues for humanity.
Nvidia added 0.6% a day after its 3.4% drop was the heaviest weight on the S&P 500 index. Advanced Micro Devices climbed 2.2%.
Such stocks led the US market to records for years, but they've come under pressure recently on worries that their prices shot too high in the frenzy around AI.
All told, the S&P 500 fell 34.25 points to 7,585.73. The Dow Jones Industrial Average dropped 328.09 to 52,093.11, and the Nasdaq composite fell 204.84 to 25,981.57.
