Stocks Slip as Rising Oil Prices Push Bond Yields to Multi-Decade Highs

The S&P 500 ($SPX) closed down 0.02%, the Dow Jones Industrial Average ($DOWI) fell 0.31%, and the Nasdaq 100 ($IUXX) edged up 0.03%. December E-mini S&P futures (ESZ26) declined 0.10%, while December E-mini Nasdaq futures (NQZ26) lost 0.03%.

Stock indexes settled mostly lower Thursday, with the Dow hitting a one-week low. Higher crude oil prices fueled inflation concerns and pushed bond yields worldwide. WTI crude surged over 2% after an Iranian official warned Tehran could expand hostilities to the Indian Ocean if the US or Israel attack again. Saudi Arabia also came under Houthi rebel fire, with missiles intercepted near the Red Sea port of Yanbu and the city of Taif.

However, crude prices pulled back from their highs, sparking short covering in equities after Reuters reported US and Iranian negotiators are exploring a phased deal—mediated by Qatar—that would see Iran reopen the Strait of Hormuz and the US lift its blockade of Iranian ports.

The oil rally triggered a global bond selloff, with the 10-year T-note yield climbing to a 19-year high of 5.22%, the German 10-year Bund reaching a 17-year high of 3.62%, and Japan’s 10-year JGB soaring to a 30-year high of 3.09%. The yield surge weighed on rate-sensitive tech stocks, particularly chipmakers and AI infrastructure names.

US economic data provided some support, with weekly jobless claims unexpectedly falling 1,000 to a two-month low of 197,000 and August new home sales rising 6.4% month-over-month to an eight-month high of 684,000. Stocks also gained from Treasury Secretary Bessent’s announcement that the US-China trade truce was extended two months to January 10.

Hawkish Fed commentary reinforced rate-hike expectations. New York Fed President John Williams cited high energy prices and AI-driven demand, while Philadelphia Fed President Anna Paulson called inflation “stubbornly elevated” and suggested “some modest further tightening” may be needed. Markets now price in a 71% chance of a 25 bp hike at the October 27-28 FOMC meeting.

Overseas markets were mixed: the Euro Stoxx 50 fell 0.43%, China’s Shanghai Composite dropped 1.22%, and Japan’s Nikkei-225 rallied 0.76% to a two-week high. The German Sep IFO business climate rose to a 3.25-year high of 89.9, and Eurozone August car registrations grew 4.5% year-over-year. ECB officials noted the Iran energy shock is proving longer-lasting than expected, with markets pricing a 54% chance of a 25 bp ECB hike on October 29.

Stock Movers

Chipmakers led weakness: ARM Holdings (ARM) plunged over 8%, Western Digital fell more than 4%, SanDisk (SNDK) dropped over 3%, and NXP Semiconductors (NXPI), Seagate (STX), ASML (ASML), Broadcom (AVGO), Qualcomm (QCOM), and Microchip (MCHP) all lost over 1%.

Software names also retreated, led by Oracle (ORCL) down 3% after citing force majeure on Project Jupiter, along with Intuit (INTU) down over 3%, and Autodesk (ADSK), ServiceNow (NOW), IBM (IBM), and Atlassian (TEAM) down over 1-2%.

Trucking and freight stocks fell with oil: FedEx Freight (FDXF) lost over 4%, UPS and Saia (SAIA) dropped over 3%, and Knight-Swift (KNX), ArcBest (ARCB), JB Hunt (JBHT), Marten Transport (MRTN), CH Robinson (CHRW), and XPO (XPO) declined over 2%.

Gen Digital (GEN) tumbled over 12% after the Financial Times reported its offer to acquire GoDaddy (GDDY, up over 4%). MGM Resorts (MGM) fell over 10% after People Inc. abandoned its acquisition. Rollins (ROL) dropped over 6% on a Piper Sandler downgrade, Dropbox (DBX) fell over 4% on a Citigroup sell rating, and Alkami (ALKT) lost over 2% after a JPMorgan downgrade.

Gainers included Everpure (P) up over 11% on raised 2028 revenue guidance, Charles River Laboratories (CRL) up over 6% on reaffirmed guidance, and Revvity (RVTY) up over 6% on a new diabetes screening kit launch.

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