A record-breaking run in stocks hit a wall as still-elevated oil prices stoked concerns that potential inflationary pressures could trigger Federal Reserve interest-rate hikes.
Those worries sent the S&P 500 down from an all-time high. Brent crude fluctuated around $100 as traders weighed a pickup in Iranian attacks on vessels in the Strait of Hormuz against resilient flows from the Middle East. Ten-year Treasuries bounced from session lows after a solid $39 billion sale, but yields remained near the highest since 2002. Bitcoin fell.
Investors are demanding greater compensation to hold global bonds on concerns about inflation, government spending and surging corporate borrowing to finance the artificial-intelligence buildout. Against this backdrop, money markets see high chances of another Fed hike by the end of 2026.
All 19 Fed officials backed the decision to raise rates in September, with many supporting the move to guard against the risk of intensifying inflation pressures, according to minutes of the last policy meeting.
“Another rate hike is probably coming this year because current policy isn’t very restrictive,” said David Russell at TradeStation. “With inflation above target and most measures of economic activity strong, price stability is the Fed’s dominant mandate.”
Read: One-Year Inflation Expectations at Three-Year High, NY Fed Says
The striking feature of the Fed minutes is how many routes led officials to the same conclusion, according to Lale Akoner at eToro. That makes the case for another hike harder to dismiss, even if the Fed waits for more data first, she said.
“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.
Traders also kept a close eye on news related to 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. The nation’s finance ministry said it’s not changing its bond-issuance strategy.
Corporate Highlights:
- China managed to get a hold of parts from an F-35 stealth fighter jet after a United Parcel Service Inc. · employee missed an email warning not to route the shipment through Hong Kong, according to a person briefed on the incident.
- Microsoft Corp. · revealed pricing and availability for a new flagship laptop built on Nvidia Corp. chips, saying that the machine outperforms a comparable Apple Inc. model on some AI tasks.
- SpaceX · is in talks with banks and investors to raise $40 billion to buy chips from Nvidia, people familiar with the matter said, in what would be among the biggest-ever debt financings for the AI buildout.
- Wells Fargo & Co. · is under investigation by the Department of Housing and Urban Development over whether the bank violated fair-lending laws as it sought to boost homeownership among Black Americans.
- Deere & Co. and other farm-equipment manufacturers plunged after the Federal Trade Commission and US Department of Agriculture launched an inquiry into market practices, including potential anti-competitive conduct.
| Key Events This Week |
|---|
| For a list, click here. |
| Take our Markets Pulse survey |
|---|
| What will the outcome of midterm elections mean for US stocks and Treasury yields? Let us know . |
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.3% as of 3:30 p.m. New York time
- The Nasdaq 100 fell 0.4%
- The Dow Jones Industrial Average fell 0.6%
- The MSCI World Index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.5% to $1.1199
- The British pound fell 0.5% to $1.3216
- The Japanese yen was little changed at 158.00 per dollar
Cryptocurrencies
- Bitcoin fell 2.6% to $83,425.73
- Ether fell 4.9% to $2,565.84
Bonds
- The yield on 10-year Treasuries was little changed at 5.28%
- 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 0.6% to $88.94 a barrel
- Spot gold fell 1.4% to $4,106.70 an ounce