US stocks came under pressure on Tuesday as rising oil prices and a sharp climb in Treasury yields added to concerns over inflation and borrowing costs ahead of the Federal Reserve's interest-rate decision. The S&P 500 fell 0.4%, while the Dow Jones Industrial Average dropped 506 points, or 1%, and the Nasdaq composite declined 0.6% as of 10:30 a.m. ET, according to the AP.
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Treasury yields put pressure on stocks
The 10-year Treasury yield rose to 5.01% from 4.97% late Monday, after briefly crossing the 5% mark for the first time since 2023. Higher yields increase borrowing costs for governments, businesses and households while making bonds more attractive relative to equities.
“The result is a market that must work harder to generate earnings growth just as investors become less willing to pay premium valuations for that growth,” Darrell Cronk, president of Wells Fargo Investment Institute, said.
The rise in yields has accelerated since February, when the war with Iran sent oil prices higher and revived concerns that inflation could remain elevated for longer. Those worries are now adding to existing concerns over the US government's heavy debt burden.
Oil keeps inflation worries alive
Oil prices added to the pressure on markets. Brent crude climbed 1.7% to $107.49 a barrel after moving between $105.10 and $108.43 during the morning. Prices remain well above the roughly $72 level seen in early July and before the Iran conflict began in February.
Uncertainty over whether the US and Iran can reach an agreement that would allow oil tankers to move freely through the Strait of Hormuz has kept crude prices elevated. Higher energy costs are also strengthening expectations that the Federal Reserve will raise its main interest rate on Wednesday for the first time in three years.
Markets are still assigning a small possibility that the Fed could hold rates steady. Such a decision could trigger volatility if investors interpret it as a sign that policymakers are less committed to bringing inflation down. Officials will also release their forecasts for interest rates in the coming years.
Consumer-focused companies were among the biggest decliners. Chipotle Mexican Grill fell 4.8%, Darden Restaurants dropped 3.6% and Dollar Tree lost 3.9%. Dave & Buster's Entertainment tumbled 15.3% after reporting weaker-than-expected quarterly results.
AI stocks, meanwhile, were steadier after their worldwide slide a day earlier. Nvidia gained 0.8% and Advanced Micro Devices rose 3%, while GE Vernova recovered 1.5% after plunging 8.6% on Monday. AI shares have faced pressure as investors question whether valuations became excessive during the technology boom.
(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)
