U.S. equities slipped Wednesday as the Iran war's escalation pushed crude oil back above $100 a barrel for the first time since July, stoking inflation fears. A Treasury buyback plan markets judged too small failed to cap bond yields, lifting the 10-year yield to its highest level since 2023.
The S&P 500 fell 0.4% Wednesday as Brent crude topped $100 a barrel, the first time since July, deepening the Iran war's inflation squeeze. The Dow Jones Industrial Average dropped 297 points, or 0.6%, and the Nasdaq composite slipped 0.6% as of 2:01 p.m. Eastern time.
"The simplest version here is that market interventions have a long history of not working very well," said Guy LeBas, chief fixed income strategist at Janney Montgomery, after the Treasury's buyback plan failed to calm the bond market.
Losses were broad, with retailers leading the decline. Amazon fell 1.9% and Starbucks dropped 1.2%, while nearly every S&P 500 sector lost ground. Energy names pushed higher, with Exxon Mobil up 2.5% and Chevron gaining 1.7%. The 10-year Treasury yield climbed to 4.85%, its highest since late October 2023, before easing to 4.83% from 4.80% late Tuesday, while the 20-year and 30-year yields both rose to about 5.29%.
The selloff traced to two forces. Brent crude rose 3% to $100.87 a barrel after the U.S. destroyed five Iranian tankers on Tuesday, in a conflict that began in February and has effectively shut the Strait of Hormuz, through which a fifth of the world's oil supply once passed. Separately, the Treasury Department said it would buy back up to $6 billion in long-term debt, a plan markets judged too small to contain yields that have climbed roughly 100 basis points since the war began. "The bond market is quite literally fighting the US Treasury," a note from The Kobeissi Letter said, warning the 10-year yield could top 5% next week without an end to the conflict.
Higher fuel costs are feeding through to households. Gasoline prices are up 32% from a year ago to $4.22 a gallon, while diesel, used heavily in shipping and production, hit an all-time high Friday and has kept climbing to $5.94 a gallon. Inflation was already running above 3%, against the Fed's 2% target, when the U.S. opened its campaign against Iran, and the trade war with much of the world, including Canada, has added to price pressures.
Wall Street gets fresh inflation readings this week, with the Producer Price Index for August due Thursday and the Consumer Price Index on Friday. Markets price a 62% chance the Federal Reserve raises its benchmark rate at next week's meeting, according to CME Group data, a move that would make borrowing costlier and further pressure equities. "Higher oil and rates remain the main risks to equities in the near term," Morgan Stanley analysts led by chief U.S. equity strategist Mike Wilson wrote.
Rising yields are also reshaping the case for stocks. Pimco, the $2.3 trillion fixed-income manager, said in a note this week that higher bond yields now offer "more visible return potential" while "the premium for taking incremental equity risk now looks unusually thin." Meta Platforms bucked the decline, rising 6.3% after launching Muse, a personal artificial intelligence agent. Markets in Europe fell, while Asian bourses closed mixed.
This article is for informational purposes only and does not constitute investment advice.
