Stocks Settle Lower as Bond Yields Surge

The S&P 500 Index ($SPX) (SPY) closed down by -0.71% on Tuesday, the Dow Jones Industrial Average ($DOWI) (DIA) closed down by -0.79%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down by -1.29%. E-mini S&P futures (ESU26) fell -0.71%, and September E-mini Nasdaq futures (NQU26) fell -1.25%.

Stock indices retreated on Tuesday, with the S&P 500 falling to a 4-week low, the Dow Jones Industrials sliding to a 1-month low, and the Nasdaq 100 posting a 1-week low. Stocks fell as surging oil prices boosted inflation expectations and bond yields and ramped up expectations that global central banks will keep raising interest rates. Investors are demanding higher yields to hold bonds as concerns intensify over persistent inflation, government spending, and surging corporate borrowing to finance the AI buildout. The higher bond yields sparked a retreat in chipmakers and AI-infrastructure stocks on Tuesday.

Tuesday's global bond sell-off pushed bond yields to multi-year highs and undercut stocks. The UK 10-year Gilt yield soared to an 18-year high of 5.25%, the German 10-year Bund yield jumped to a 15-year high of 3.36%, the Japanese 10-year JGB bond yield surged to a 30-year high of 3.00%, and the 10-year T-note yield rose to a 1.75-year high of 4.80%.

Stocks maintained their losses on Tuesday amid weaker-than-expected US economic news, including Aug ISM manufacturing, July construction spending, and July JOLTS job openings.

The US Aug ISM manufacturing index fell -1.0 to 54.6, weaker than expectations of 55.2. The Aug ISM prices paid sub-index was unchanged at 71.1, stronger than expectations of a decline to 70.8.

US July construction spending fell by -0.5% m/m, weaker than expectations of no change.

The US July JOLTS job openings unexpectedly rose +89,000 to 7.271 million from a downward-revised 7.182 million in June, weaker than expectations of 7.313 million.

Hawkish comments on Tuesday from Fed Governor Michael Barr were bearish for stocks and bonds when he said, "If inflation appears not to be moderating sufficiently, then I think we should act decisively to raise interest rates."

Oct WTI crude oil prices (CLV26) surged more than +5% on Tuesday to a 6-week high as Middle East hostilities escalated. Late Monday, two oil supertankers were struck by projectiles while attempting to exit the Strait of Hormuz. Also on Monday, the US struck Iranian rocket launchers preparing to send mines into the Strait of Hormuz, and Iran retaliated by firing missiles and drones at US air bases in Jordan, while the United Arab Emirates said it intercepted drones from Iran.