Wall Street Falls as Oil Surges, Treasury Yields Hit Multi-Year Highs

U.S. stocks closed lower Wednesday as rising oil prices, stronger economic data and climbing Treasury yields increased expectations for another Federal Reserve rate hike, with Alphabet, Amazon and semiconductor stocks among the session’s biggest drags.

By yourNEWS Media Newsroom.

Wall Street retreated Wednesday as a nearly 4% surge in oil prices and another sharp rise in Treasury yields renewed concerns about inflation and the prospect that U.S. interest rates will remain elevated.

The S&P 500 fell 0.75% to 7,706.05, while the Nasdaq Composite dropped 1.13% to 26,936.04. The Dow Jones Industrial Average declined 0.68% to 51,511.59. Nine of the S&P 500’s 11 sectors finished lower.

The decline interrupted recent momentum in technology shares after the Nasdaq posted record-high closes in the previous two sessions. The S&P 500 remained less than 2% below its Aug. 13 record closing high.

Investors faced pressure from both the bond and energy markets.

The benchmark 10-year Treasury yield climbed above 5% and reached its highest level since 2007, while the yield on the two-year note touched its highest level since 2024. Rising yields can pressure stocks by increasing borrowing costs and making government bonds more competitive with equities.

A stronger-than-expected reading on U.S. business activity helped accelerate the bond selloff.

S&P Global’s flash U.S. Composite PMI Output Index climbed to 58.4 in September, up from 56.0 in August and its highest level since July 2021. A reading above 50 indicates expansion. The report also showed rising input-price pressures, adding to concerns that inflation may remain difficult for the Federal Reserve to contain.

Federal Reserve Gov. Michael Barr reinforced those concerns Wednesday by signaling that additional monetary tightening will likely be necessary.

“Risks to achieving our inflation target have increased, while risks to the labor market have receded,” Barr said. “In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion.”

The Fed raised its benchmark rate last week to a range of 3.75% to 4%, its first increase in more than three years. Sixteen of 18 policymakers indicated that at least one additional increase could be needed before the end of the year.

By Wednesday, traders were pricing in about a 70% to 71% probability of another rate increase at the Fed’s Oct. 27-28 meeting, up sharply from earlier in the day.

Oil added another source of pressure.

Brent crude settled $3.83 higher, or 3.86%, at $103.08 a barrel, while U.S. West Texas Intermediate gained $1.64, or 1.81%, to $92.16. Prices climbed after Iranian President Masoud Pezeshkian told the United Nations that Tehran would not surrender to U.S. pressure, one day after President Donald Trump warned that he could “annihilate” Iran if negotiations fail.

The geopolitical developments heightened uncertainty over Middle East energy supplies and the Strait of Hormuz as Washington and Tehran continued indirect negotiations.

“The stock market wants a resolution to the (Middle East) conflict, and if we don’t get that, we will have higher rates for longer, and that’s going to continue to weigh on the equity market,” said Lauren Cassidy, chief investment officer at Founders 100 ETF in Dallas.

Energy stocks benefited from the oil rally even as most of the broader market declined.

Technology shares were among the largest weights on the indexes.

Alphabet fell 3.8%, while Amazon declined 2.2%. Amazon has blocked Meta Platforms’ new “Muse” artificial intelligence assistant from operating on its shopping platform.

Meta moved in the opposite direction, gaining about 1% and extending its advance for the week to roughly 12% following a positive reception for Muse. Analysts have said the AI assistant could benefit technology-infrastructure companies while increasing competitive pressure on banks, online retailers and other consumer-facing businesses.

Semiconductor stocks also weakened. The PHLX Semiconductor Index fell 1.2%, with Nvidia losing 1.5%.

Travel-related companies were hit particularly hard, with Expedia and Airbnb each falling more than 7%.

The market was also watching President Trump’s three-day Washington visit with Chinese President Xi Jinping. Discussions are expected to include the U.S.-China trade truce, artificial intelligence policy and U.S. arms sales to Taiwan.

Despite Wednesday’s decline, valuations have fallen from earlier highs. The S&P 500 was trading at just under 19 times expected earnings, its lowest forward valuation since 2023, according to LSEG data. AI-related companies have accounted for much of the recent improvement in earnings expectations.

Among individual companies, Cracker Barrel climbed 4.5% after the restaurant chain exceeded fourth-quarter sales estimates.

Paychex moved sharply lower, falling 8.8% after the payroll and human resources services company reported that its largest business segment missed first-quarter revenue expectations.

Market breadth reflected the broader weakness, with declining S&P 500 stocks outnumbering advancing shares by approximately 1.9 to 1.

Wednesday’s session ultimately combined several pressures investors have been monitoring for months: resilient economic growth, persistent inflation, rising energy costs and higher interest rates.

Strong business activity ordinarily points to economic resilience, but with inflation still above the Federal Reserve’s 2% target, investors interpreted Wednesday’s data as increasing the possibility that policymakers will raise borrowing costs again rather than begin easing them.

At the same time, uncertainty surrounding Iran pushed oil higher, adding another potential inflationary force just as Treasury yields were reaching levels not seen in nearly two decades.