U.S. stocks finished lower Wednesday as a sharp rise in Treasury yields and another surge in oil prices put inflation and interest-rate concerns back at the center of investors’ attention. Stronger-than-expected business activity added to the pressure, with both manufacturing and services showing considerably more strength than anticipated. The data reinforced expectations that the Federal Reserve may need to keep monetary policy restrictive, while investors also weighed uncertainty surrounding U.S.-Iran negotiations ahead of Thursday’s U.S.-China summit.
The Dow Jones Industrial Average fell 351 points to 51,512, while the NASDAQ Composite declined 1.13% to 26,936 and the S&P 500 lost 0.71% to 7,710. Technology and other rate-sensitive areas were among the weaker parts of the market as yields climbed. Energy was the notable exception, benefiting as oil prices reversed their recent decline and Brent crude jumped more than 4% to roughly $104 per barrel.
Treasury yields rose sharply across the curve after the stronger economic readings increased expectations for additional Federal Reserve tightening. The 5-year yield approached 5%, rising roughly 15 basis points during the session, while the 10-year yield climbed above 5.1% and reached its highest level since 2007. A weak 5-year Treasury auction added further pressure to bonds during the afternoon, reinforcing concerns surrounding the market’s ability to absorb heavy Treasury issuance at current interest rates.
Attention now turns to Thursday’s economic releases, along with the U.S.-China summit and further developments surrounding Iran and energy markets. Investors will be watching whether resilient economic activity and higher oil prices continue to place upward pressure on inflation expectations and Treasury yields. Adams Wealth Advisors will continue monitoring these developments and keep you informed.