Global Markets - Stock Market Drops amid Pressure from Oil Price and Treasury Yield Rise

Updated through the morning, with added quotes and detailed information on possible Fed rate hikes

Caroline Valetkevitch/Amanda Cooper

Reuters New York/London, September 28 - On Monday, major stock indices fell as oil prices regained upside momentum after U.S.-Iran talks (link) stalled, while Treasury yields continued their recent climb amid market expectations that the Federal Reserve will further hike rates in the coming months.

The Nasdaq index led Wall Street (link) declines even as chipmaker Nvidia NVDA.O saw its shares rise after boosting its stock buyback authorization to a record $150 billion, surpassing Apple’s AAPL.O $110 billion repurchase program set for 2024. Nvidia shares advanced about 2%, but retreated from earlier session highs.

Gold prices slid (link) on concerns rising oil prices would fuel inflation. Spot gold XAU= fell 3.9% to $4,119.55 per ounce.

Over the weekend, U.S. President Donald Trump (link) rejected Iran’s proposal to reopen the Strait of Hormuz and said talks would continue this week, though little progress was made toward ending the seven-month-long conflict. Iran has shown little sign of changing its offer.

U.S. crude CLc1 climbed 3.5% to $95.60 a barrel; Brent crude LCOc1 rose 3.4% to $107.86 a barrel.

According to CME FedWatch, markets are currently pricing in about a 70% chance of the Federal Reserve hiking rates for a consecutive second time in October. Earlier this month, the Fed responded to rising inflation with its first rate hike since 2023.

“The market consensus right now is ‘rates will stay higher for longer,’ which puts pressure on stocks. I don’t advise anyone to panic … but it’s definitely worth keeping a close eye on,” said Oliver Pursche, Senior Vice President and Advisor at Wealthspire Advisors in Westport, Connecticut.

“It’s necessary to keep an eye on economic data, on the unemployment rate, and on company earnings. As long as these metrics remain strong, the current yield level shouldn’t present too much of a shock.”

With robust U.S. economic growth and corporate earnings, Wall Street and the general public are currently able to absorb the rising yields and oil prices. The Dow Jones Industrial Average .DJI fell 401.54 points, or 0.78%, to 51,426.18. The S&P 500 .SPX dropped 69.86 points, or 0.91%, to 7,673.11; the Nasdaq Composite .IXIC lost 305.53 points, or 1.13%, to 26,763.19.

However, the rising cost of capital is becoming a significant risk for artificial intelligence-related companies, especially for the so-called “hyperscale technology companies” whose billions in borrowing and spending have powered global stock markets.

On Monday, higher oil prices contributed to another push in bond yields. The 30-year Treasury yield climbed to its highest since mid-May 2004, while the 10-year yield hit its highest since mid-June 2007 before paring gains.

The two-year note yield US2YT=RR, which is most sensitive to shifts in interest rate and inflation expectations, has surged 56 basis points so far in September as markets bet on additional Fed hikes—the largest monthly increase since February 2023.

This gain has shrunk the spread between the 2-year and benchmark 10-year yield to about 31 basis points from roughly 40 basis points a month ago, a phenomenon known as curve flattening.

The U.S. benchmark 10-year Treasury US10YT=RR yield added 8.25 basis points to 5.26%, while the 30-year Treasury US30YT=RR yield rose 7.4 basis points to 5.576%.

The MSCI all-country world stock index .MIWD00000PUS lost 9.57 points, or 0.83%, to 1,138.66. The pan-European STOXX 600 index .STOXX was up 0.21%.

Key U.S. Data This Week

This week’s highlights include the U.S. non-farm payrolls report for September and the monthly Personal Consumption Expenditures (PCE) price index, both offering deeper insight into labor market and inflation trends.

A recent run of upbeat data has strengthened the dollar. The euro EUR= slipped 0.25% to $1.1363.

Against the yen JPY= the dollar was up 0.18% at 157.54. Earlier, Japan’s top currency diplomat Atsushi Mimura (link) warned potential sellers again over yen weakness in an interview with Reuters.

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