Market Overview
US equity markets closed lower, pressured by a sharp rise in crude oil prices, surging Treasury yields, and heightened expectations for a Federal Reserve rate hike. An acceleration in the August Producer Price Index (PPI) fueled these concerns, with the market increasingly focusing on macroeconomic factors like rates and inflation. All major indices ended the session in negative territory, while benchmark crude oil futures topped $100 a barrel for the first time in over three months.
Markets
The S&P 500 shed 0.6% to close at 7,592.12, the Nasdaq Composite fell 0.7% to 26,081.73, and the Dow Jones Industrial Average lost 0.6% to 52,064.46.
In the bond market, US Treasury yields surged across the curve. The benchmark 10-year note jumped to around 4.95%, its highest level in nearly three years. The more rate-sensitive 2-year yield added 14 basis points to 4.567%.
Crude oil prices extended their weekly rally. Brent crude advanced 6.3% to settle at $107.63 a barrel, and WTI crude gained 6.7% to $102.48. Both Brent and WTI crude futures settled above $100 a barrel for the first time since May.
What Drove Markets
The primary catalyst for the market’s downturn was the August US Producer Price Index (PPI) headline figure, which rose 0.4% month-over-month and 5.4% year-over-year. CME FedWatch showed the probability of a 25-basis-point hike rising to around 70% by the close, from 64% the previous day.
The surge in US Treasury yields, with the 10-year yield hitting a multi-month high, was also a significant headwind. Analysts noted that elevated yields, following an underwhelming US Treasury buyback update, are likely to persist, potentially signaling a shift towards yield-curve and earnings-quality trades and acting as a drag on equity valuations.
Crude oil prices surged as escalating US-Iran hostilities, attacks on shipping and energy infrastructure, and growing disruption risks around the Strait of Hormuz raised concerns about supply disruptions. The market is bracing for a prolonged conflict and intensified attacks on shipping and energy infrastructure, with Goldman Sachs warning that these developments could push oil prices above $120 a barrel. This surge in commodity prices further exacerbated inflation concerns. The overall market focus has shifted from earnings to macroeconomic factors like rates, inflation, and Fed expectations.
Stocks to Watch
Within equities, nine of the 11 S&P 500 industry sectors declined, with the materials sector pacing the losses. Chipmakers, including Nvidia, Micron, AMD, and Intel, came under pressure as rising Treasury yields weighed on high-duration technology and growth stocks. Bucking the broader market trend, Apple climbed 3.6% following the unveiling of its new foldable iPhone Duo.