A record-breaking run in stocks hit a wall as still-elevated oil prices lifted bond yields, stoking concerns that potential inflationary pressures could trigger Federal Reserve rate hikes.
Those worries sent the S&P 500 down from an all-time high and halted the Nasdaq 100’s six-day gain. Brent crude traded above $100 amid a pickup in Iranian attacks on vessels in the Strait of Hormuz. Treasury 10-year yields hovered near the highest since 2002 before a $39 billion sale of the bonds and minutes of the last Fed meeting. The dollar rose. Bitcoin fell.
Investors are demanding greater compensation to hold global bonds as concerns about persistent inflation, government spending and surging corporate borrowing to finance the artificial-intelligence buildout intensify.
That sense of unease is being compounded by France’s fiscal woes, which are threatening to drag the European Central Bank into the kind of face-off with markets it hasn’t seen since the euro area’s debt crisis more than a decade ago.
Americans’ expectations for inflation in the short-term jumped last month while sentiment toward the labor market improved, according to a Fed Bank of New York survey. Minutes of the Fed’s September gathering could reveal that many policymakers were deeply worried about underlying price trends.
“Persistently high energy prices keep risks to inflation, policy rates, and benchmark bond yields skewed to the upside,” said Elias Haddad at Brown Brothers Harriman & Co.
“A Fed pause may not bring down long yields if term premiums remain elevated,” said Ulrike Hoffmann-Burchardi at UBS Chief Investment Office. “Fixing the curve’s long-term problem without fiscal tightening requires two things: productivity-led growth and periods of low real borrowing costs.”
She recommends positioning for this by staying invested in AI-driven productivity gainers, diversifying across equities and high-quality fixed income, with a preference for shorter- over longer-duration bonds.
Equity markets face a genuine rival in bonds for the first time in decades, Bank of America Corp.’s Savita Subramanian told Bloomberg Television. She also cautioned that elevated investor sentiment leaves stocks more exposed to disappointment than upside.
With the recent developments in the credit markets, it will be essential that we get another extremely strong earnings season, noted Matt Maley at Miller Tabak. Analysts expect a roughly 25% increase in third-quarter S&P 500 profits from a year earlier, according to data compiled by Bloomberg Intelligence.
Corporate Highlights:
- SpaceX · is in talks with banks and investors to raise $40 billion to buy chips from Nvidia Corp., people familiar with the matter said, in what would be among the biggest-ever debt financings for the AI buildout.
- Elon Musk said his business empire will build and operate Terafab independently, quashing speculation about industry leader Taiwan Semiconductor Manufacturing Co. · swooping in to run his ambitious chipmaking venture.
- Intel Corp. · will continue to work with Musk on Terafab, according to Chief Executive Officer Lip-Bu Tan.
- Apple Inc. · ’s upcoming push into smart home devices will include a doorbell, thermostat and other accessories developed through an unusual partnership with LG Electronics Inc.
- Alphabet Inc. · ’s Google and gaming tools developer Unity Software Inc. announced a new platform that will allow people to create video games from simple text prompts, marking the latest incursion of generative artificial intelligence into artistic and creative industries.
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Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.4% as of 11:41 a.m. New York time
- The Nasdaq 100 fell 0.4%
- The Dow Jones Industrial Average fell 0.9%
- The Stoxx Europe 600 fell 1%
- The MSCI World Index fell 0.7%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.6% to $1.1189
- The British pound fell 0.5% to $1.3211
- The Japanese yen was little changed at 158.11 per dollar
Cryptocurrencies
- Bitcoin fell 2.7% to $83,273.85
- Ether fell 5% to $2,564.3
Bonds
- The yield on 10-year Treasuries advanced three basis points to 5.31%
- Germany’s 10-year yield was little changed at 3.48%
- Britain’s 10-year yield advanced seven basis points to 5.44%
Commodities
- West Texas Intermediate crude fell 0.2% to $89.28 a barrel
- Spot gold fell 1.3% to $4,108.54 an ounce