Stocks pulled back further from recent all-time highs on Thursday as traders watched oil prices spike and key bond yields resume their march to their highest levels in nearly a quarter century.
The records logged earlier in the week didn’t last long, with stock losses mounting for a second day on Thursday following fresh records in Tuesday’s session.
Dow futures were down more than 500 points, while the S&P 500 and the Nasdaq Composite, which both hit all-time highs in the week, were on track to open nearly 1% lower.
Oil and bond yields were the familiar culprits hitting equities in early Thursday trading.
Brent crude prices jumped 5% to $105 per barrel on concerns about new large-scale attacks on Iran in the coming weeks. Reports said that Donald Trump and his advisors have been drawing up plans for major strikes ahead of the midterm elections in November. Trump also told attendees at a rally on Wednesday that a deal “isn’t really something that I want to do.”
Meanwhile, renewed selling in Treasurys drove yields higher again. The 10-year Treasury yield was up 5 basis points to 5.33%, but was up as much as 7 basis points before paring. Comments from a top Fed official were the catalyst for the latest yield spike. Fed Gov. Christopher Waller said during an event in Turkey that more hikes are likely needed to cool inflation. On Wednesday, minutes from the September meeting indicated officials see one more hike on the horizon this year.
The new spike comes as investors are also nervously eyeing France’s bond chaos, which market observers see as a warning for other economies dealing with fiscal instability.
Jim Reid, global head of macro research at Deutsche Bank noted the global nature of the market’s bond roller coaster, flagging the pressure it’s putting on other areas of the market.
“The UK’s 10yr gilt yield (+6.8bps) hit a post-2007 high of 5.44% while 10yr Italian yields rose by +9.7bps,” he wrote. “US Treasuries did mostly stabilise amid a pullback in oil and a strong 10yr auction, but 30yr yields (+1.3bps) still reached a new post-2002 high of 5.67% and are back up +2.7bps this morning. The renewed stress led to mounting pressure on risk assets”
David Morrison, chief market strategist at Trade Nation, added that there may be other factors weighing on US markets. An update out of Silicon Valley may be adding to concerns about oversupply of new debt at a time when demand for Treasurys already appears uncertain. Bloomberg reported on Tuesday that SpaceX is looking to raise up to $40 billion of debt financing to buy Nvidia chips for its data centers.
“Treasury yields spiked up again, with both the US 10-year and 30-year hovering around the 24-year highs seen this time last week,” he said. “The jump in crude prices hasn’t helped. Nor has the news that SpaceX, Oracle and Broadcom are all looking to raise cash for AI chip purchases.”
