Equities retreated further from recent record highs on Thursday as investors reacted to a sharp rise in oil prices and bond yields reaching their highest levels in almost 25 years.
Records set earlier in the week proved short-lived, with stock declines deepening for a second consecutive day on Thursday after achieving peaks on Tuesday.
Dow futures dropped over 500 points, while the S&P 500 and Nasdaq Composite—both of which reached all-time highs earlier in the week—were poised to open nearly 1% lower.
Oil and bond yields remained the primary headwinds pressuring stocks in early Thursday trading.
Brent crude surged 5% to $105 per barrel amid fears of large-scale attacks on Iran in the coming weeks. Reports indicated that Donald Trump and his advisors have been drafting plans for major strikes ahead of the November midterm elections. At a rally on Wednesday, Trump stated that a deal “isn’t really something that I want to do.”
At the same time, renewed selling in Treasurys pushed yields higher once again. The 10-year Treasury yield rose 5 basis points to 5.33%, though it had climbed as much as 7 basis points before easing.
A top Fed official’s remarks provided the catalyst for the latest yield surge. Fed Governor Christopher Waller said during an event in Turkey that additional rate hikes are likely necessary to rein in inflation.
On Wednesday, the September meeting minutes suggested officials expect one more hike before the end of the year.
This latest spike occurs as investors continue to closely monitor developments in France’s bond market turmoil, which analysts view as a cautionary signal for other economies grappling with fiscal instability.
Jim Reid, global head of macro research at Deutsche Bank, highlighted the worldwide nature of the bond market volatility and its spillover effects across other financial markets.
“The UK’s 10yr gilt yield (+6.8bps) reached a post-2007 peak of 5.44% while 10yr Italian yields increased by +9.7bps,” he wrote. “US Treasuries mostly stabilized during a pullback in oil and a strong 10yr auction, but 30yr yields (+1.3bps) hit a fresh post-2002 high of 5.67% and are up +2.7bps this morning. The renewed stress has intensified pressure on risk assets”
David Morrison, chief market strategist at Trade Nation, noted that additional factors may be weighing on US markets. A development from Silicon Valley could be adding to concerns about oversupply of new debt at a time when demand for Treasurys already appears uncertain. Bloomberg reported on Tuesday that SpaceX is seeking to raise up to $40 billion in debt financing to purchase Nvidia chips for its data centers.
“Treasury yields surged again, with both the US 10-year and 30-year hovering around the 24-year highs seen this time last week,” he said. “The jump in crude prices hasn’t helped. Nor has the news that SpaceX, Oracle and Broadcom are all looking to raise cash for AI chip purchases.”