Stocks fell on Tuesday as traders looked ahead to the Federal Reserve’s policy decision this week, which could have a huge impact on the economy as Treasury yields surged to multiyear highs.
The Dow Jones Industrial Average lost 328.09 points, or 0.63% to close at 52,093.11. The S&P 500 fell 0.45% to end at 7,585.73, while the Nasdaq Composite dropped 0.78% and settled at 25,981.57.
Losses in the S&P 500 and Nasdaq were mitigated by gains in a number of stocks connected to artificial intelligence, which were under pressure in the prior trading day. Coherent added nearly 2%, while Advanced Micro Devices gained 2%. Qualcomm advanced more than 4%.
Tuesday saw the yield on the benchmark 10-year Treasury note rise to its highest since 2007, reaching 5.041%. Bond yields and prices move in opposite directions. The yield later came off its high, last up more than 3 basis points at 5.00%.
Global bond yields have been in focus for equity markets in recent weeks, with government debt selling off amid mounting fears that the ongoing U.S.-Iran war will fuel inflation and a hawkish turn among central banks.
Oil prices moved higher after Saudi Arabia shuttered a key pipeline that bypasses the Strait of Hormuz, leading Brent futures to close above $105 per barrel and West Texas Intermediate crude to settle over $101 on Monday. Crude extended gains on Tuesday, with Brent crude oil futures for November delivery rising almost 3% to end the session at $108.75 a barrel, while WTI futures advanced more than 4% to $105.83.
As Treasury yields and oil continue to rise, the Fed’s policy rate decision expected Wednesday is also weighing on traders’ minds. Fed funds futures trading suggests a more than 94% likelihood that the central bank will lift rates by a quarter point from the current target rate range of 3.5% to 3.75%. That decision could reverberate through the global economy.
