Equity Markets Slide as Oil-Fueled Inflation Fears Push Yields Higher

The S&P 500 Index ($SPX; SPY) was down 0.41%, the Dow Jones Industrial Average ($DOWI; DIA) fell 0.58%, and the Nasdaq 100 Index ($IUXX; QQQ) declined 0.68%. December E-mini S&P futures (ESZ26) were down 0.48%, while December E-mini Nasdaq futures (NQZ26) slipped 0.70%.

Stock indexes came under pressure as rising crude oil prices intensified inflation concerns and pushed bond yields higher worldwide. WTI crude gained more than 2% after an Iranian official warned that Iran could expand the conflict into the Indian Ocean if the U.S. or Israel launches another attack.

The surge in crude prices triggered a selloff in global bonds. The U.S. 10-year Treasury yield climbed to a 19-year high of 5.15%, the German 10-year Bund yield reached a 17-year high of 3.59%, and Japan’s 10-year JGB yield soared to a 30-year high of 3.09%. Higher yields weighed on rate-sensitive technology shares, including chipmakers and companies building artificial-intelligence infrastructure.

Equities recovered from their steepest declines as stronger U.S. economic data improved sentiment and Treasury yields stabilized below their early highs. Weekly jobless claims unexpectedly fell to a two-month low, while August new-home sales rose to an eight-month high.

Another source of support was a reported agreement between the U.S. and China to extend their trade truce by another two months, through January 10, Treasury Secretary Bessent said late Wednesday.

Initial unemployment claims dropped by 1,000 to 197,000, beating expectations for an increase to 200,000. August new-home sales rose 6.4% month over month to 684,000, above forecasts of 616,000. The results pointed to greater resilience in the labor market and housing sector.

Hawkish comments from Federal Reserve officials also weighed on stocks and bonds. New York Fed President John Williams said the central bank still has substantial work to do, citing persistent energy prices and investment-driven demand associated with artificial intelligence. Philadelphia Fed President Anna Paulson said underlying inflation remained “stubbornly elevated” and had made little progress. “Looking ahead, if conditions evolve as I expect, some modest further tightening of monetary policy may be warranted” to return inflation to the Fed’s 2% target.

November WTI crude oil futures (CLX26) rose more than 2% after Iran threatened to widen the Middle East conflict. A senior member of the Revolutionary Guard Corps warned that Iran could extend operations into the Indian Ocean if attacked again by the U.S. or Israel. Expectations of a U.S.-Iran settlement that could normalize energy flows through the Strait of Hormuz have faded over the past two days amid aggressive rhetoric from President Trump and continued defiance from Iran.

Traders are assigning a 65% probability to a 25-basis-point Federal Reserve rate increase at the October 27-28 FOMC meeting.

Overseas equities were mixed. The Euro Stoxx 50 slipped 0.03%, China’s Shanghai Composite closed down 1.22%, and Japan’s Nikkei 225 gained 0.76% to reach a two-week high.

Interest Rates

December 10-year Treasury notes (ZNZ6) fell three ticks. The 10-year Treasury yield rose 1.3 basis points to 5.127%. December contracts matched Wednesday’s 19-year low for the nearest futures contract, while the yield touched 5.148%, also a 19-year high.

WTI crude’s gain of more than 2% lifted inflation expectations and pressured Treasury prices. Stronger-than-expected labor-market and housing data reinforced views of economic resilience and a hawkish Fed stance. Hawkish remarks from Williams and Paulson added to the weakness. Treasury supply also weighed on the market as the government prepares to auction $44 billion in seven-year notes later today.

European government bond yields also moved higher. The 10-year German Bund yield reached a 17-year high of 3.594%; at 3.589%, it was up 3.4 basis points. The 10-year U.K. gilt yield touched a one-week high of 5.388% and was up 0.5 basis points to 5.352%.

Eurozone new-car registrations rose 4.5% year over year in August to 708,000 units. Germany’s September IFO business climate index improved 1.1 points to 89.9, a 3.25-year high and above the 89.0 forecast.

ECB Executive Board member Isabel Schnabel said the energy shock caused by the Iran war is proving more persistent than initially expected and is spreading beyond oil.

ECB Governing Council member Dimitar Radev said policymakers need to allow recent rate increases time to take effect before deciding whether further hikes are necessary.

Markets are pricing in a 55% probability of a 25-basis-point ECB rate increase at its October 29 meeting.

U.S. Stock Movers

Chipmakers and artificial-intelligence stocks weighed on the broader market. The iShares Semiconductor ETF (SOXX) fell more than 1%. Western Digital and ARM Holdings (ARM) each declined more than 3%, while SanDisk (SNDK), Microchip Technology (MCHP), Applied Materials (AMAT), Marvell Technology (MRVL), KLA (KLAC), Broadcom (AVGO), Qualcomm (QCOM), NXP Semiconductors (NXPI), and Lam Research (LRCX) each lost more than 2%. Micron Technology (MU), ASML Holding (ASML), Nvidia (NVDA), Analog Devices (ADI), and Texas Instruments (TXN) also fell more than 1%.

Software shares were under pressure. Oracle (ORCL) fell 5% after issuing a force-majeure notice to the developer of a New Mexico data center, a unit of Blue Owl Capital, seeking to defer payments if Project Jupiter was delayed and missed its planned 2028 launch. IBM (IBM) declined more than 2% to lead Dow losers, while ServiceNow (NOW), Microsoft (MSFT), and Autodesk (ADSK) each slipped more than 1%.

Energy stocks and service providers advanced alongside WTI crude. Valero Energy (VLO) gained more than 3%. Devon Energy (DVN), Diamondback Energy (FANG), Marathon Petroleum (MPC), and Phillips 66 (PSX) each rose more than 2%. APA (APA), Chevron (CVX), ConocoPhillips (COP), Occidental Petroleum (OXY), ExxonMobil Holdings (XOM), and Halliburton (HAL) each gained more than 1%.

MGM Resorts International (MGM) fell more than 9% to lead S&P 500 losers after People Inc. abandoned plans to acquire the company’s remaining shares.

Gen Digital (GEN) declined more than 6% after the Financial Times reported that the company had made an offer to acquire GoDaddy.

Rollins (ROL) dropped more than 6% after Piper Sandler downgraded the stock from overweight to neutral.

Dropbox (DBX) fell more than 3% after Citigroup downgraded it from neutral to sell, setting a $29 price target.

Alkami Technology (ALKT) declined more than 3% after JPMorgan Chase downgraded it from overweight to underweight, with a $14 target.

Everpure (P) surged more than 17% after forecasting 2028 revenue of $7.0 billion to $7.3 billion, well above the $6.19 billion consensus estimate.

GoDaddy (GDDY) rose more than 7% after the Financial Times reported that Gen Digital had made an acquisition offer.

Charles River Laboratories (CRL) gained more than 5% after reaffirming its 2026 financial guidance.

Dollar General (DG) advanced more than 2% after HSBC upgraded the stock from hold to buy, establishing a $160 price target.

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