U.S. Equities Decline as Crude Prices Surge and Treasury Yields Breach 5%

By Stephen Culp and Tharuniyaa Lakshmi

NEW YORK, Sept 15 (Reuters) – U.S. equities extended their downward trajectory on Tuesday, as mounting sovereign debt concerns, escalating crude oil prices, and rising Treasury yields deterred market participation.

All three primary U.S. stock indices deepened Monday’s losses, as pervasive risk-off sentiment suppressed nearly every sector except energy. That sector advanced on intensifying geopolitical tensions in the Middle East, triggered by fresh strikes on Saudi Arabia’s energy assets.

“Given escalating fuel costs, particularly diesel, alongside the near-certain prospect of interest rate hikes commencing tomorrow and apprehensions regarding a potential deceleration in the artificial intelligence sector, why would investors aggressively enter the market until these uncertainties subside?” remarked Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

The Federal Reserve is currently engaged in its two-day monetary policy assembly, which is scheduled to conclude on Wednesday with the central bank’s interest rate determination. Recent economic indicators suggest a resilient labor market, but conflict-driven energy price surges are increasingly translating into systemic inflation. Consequently, the central bank is widely anticipated to raise the federal funds target rate by 25 basis points—marking its first rate increase in over three years.

Following last week’s hotter-than-expected inflation data and a nearly 25% surge in U.S. crude prices over the preceding fortnight, financial markets have priced in a 94.5% probability of a rate hike on Wednesday, a significant increase from 33.1% just one month prior, according to CME’s FedWatch tool.

Tuz further noted that while markets will receive the Fed’s decision tomorrow, “the Middle East conflict remains an unpredictable variable regarding its duration.”

Front-month West Texas Intermediate and Brent crude settled 4.4% and 2.9% higher, respectively, while diesel futures closed at unprecedented record highs.

“This will likely not be a singular event, but rather a sequence of rate hikes,” stated Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest in Elmhurst, Illinois. “It will hinge on oil; that is the primary driver of inflation, and it is beginning to permeate other sectors of the market.”

As expectations for rate increases grew, global bond yields resumed their upward momentum, with benchmark U.S. Treasury yields surpassing the 5% threshold and reaching their highest levels since 2007.

Elevated interest rates are exacerbating the financial burden on heavily leveraged borrowers, including corporations that have made substantial investments in artificial intelligence.

These anxieties amplified existing fears regarding AI’s disruptive capabilities and intensifying resistance to data center construction, which culminated on Monday and caused the Philadelphia SE Semiconductor index to plummet.

The semiconductor index, which has been a primary catalyst for broader market gains this year, failed to mount a meaningful recovery from Monday’s sell-off, eking out a modest 0.4% gain.

The Dow Jones Industrial Average declined 328.09 points, or 0.63%, to close at 52,093.11. The S&P 500 dropped 34.25 points, or 0.45%, to 7,585.73, and the Nasdaq Composite fell 204.84 points, or 0.78%, to 25,981.57.

Within the 11 major sectors of the S&P 500, consumer discretionary stocks suffered the steepest percentage declines, whereas the energy sector advanced 2.3%, bolstered by rising crude prices.

Dave & Buster’s shares plummeted 19% after the company reported a second-quarter revenue shortfall.

Waystar shares gained 7.1% after Reuters reported that the healthcare software firm is evaluating strategic options, including a potential sale.

Cryptocurrency weakness was compounded by the U.S. Senate’s failure to advance comprehensive digital asset legislation, dealing a setback to the industry. Crypto firms Coinbase and Strategy declined 10.1% and 5.4%, respectively.

On the New York Stock Exchange, declining issues outnumbered advancing ones by a ratio of 2.56-to-1. The exchange recorded 113 new highs and 673 new lows.

On the Nasdaq, 1,439 stocks rose while 3,356 fell, as declining issues outnumbered advancers by a 2.33-to-1 ratio.

The S&P 500 posted 14 new 52-week highs and 18 new lows, while the Nasdaq Composite recorded 52 new highs and 264 new lows.

Trading volume on U.S. exchanges reached 15.85 billion shares, compared to a 20-day average of 15.14 billion shares.

(Reporting by Stephen Culp; Additional reporting by Niket Nishant and Tharuniyaa Lakshmi in Bengaluru; Editing by Rod Nickel)

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