US Stocks Retreat from Records as Oil and Yields Climb

NEW YORK – U.S. stocks fell from all-time highs on Wednesday, as a renewed surge in oil prices and long-dated Treasury yields wiped out a day-old record for the S&P 500 and the Nasdaq Composite.

The Dow Jones Industrial Average dropped 341.11 points, or 0.66%, to 51,180.17. The S&P 500 lost 17.18 points, or 0.22%, to 7,801.75, and the Nasdaq Composite fell 61.19 points, or 0.22%, to 27,538.69. The declines ended four-day winning streaks for the S&P 500 and the Dow, while the Nasdaq recorded its first down day in six sessions.

The small-cap Russell 2000 underperformed, tumbling 1.3%, reflecting broader weakness beyond the megacap names that had driven the prior day’s record highs.

Oil, Yields Fuel Retreat

Brent crude settled above $100 per barrel on Wednesday, driven by persistent concerns over supply disruptions tied to the Iran conflict. The move pushed long-dated U.S. Treasury yields to a 24-year high, reviving fears that rising energy costs will reignite inflation and force central banks to keep interest rates elevated for longer.

“Investors have been looking for some relief on oil, which would drive some relief on rates and that would therefore help the stock market,” said Thomas Martin, senior portfolio manager at Globalt in Atlanta. “The third quarter was supposed to be the weak quarter of the year; we were supposed to get a correction. That didn’t happen, so it’s three cheers and let’s take some money off the table.”

Stocks pared some losses after crude prices turned lower following the International Energy Agency’s agreement to speed up the release of oil stocks, prioritizing diesel.

Fed Minutes Show Division

Minutes from the Federal Reserve’s September monetary policy meeting, at which the central bank unanimously approved its first rate hike since July 2023, revealed internal divisions over the rationale for the increase. Some participants viewed the hike as necessary to contain energy price shocks, while others saw it as a measure to curb demand-driven inflation.

Financial markets now price in a 17.2% probability that the Fed will deliver a second consecutive rate hike at its October meeting, down sharply from 37.6% a week earlier, according to CME’s FedWatch tool.

“The market’s Fed expectations are going to seesaw as it gets new bits of data,” Martin added. “There’s still an expectation for more rate hikes, but it isn’t necessarily going to be a hike every meeting and that’s what the market is telling you; October will be a pause.”

Sector and Breadth Details

Among the S&P 500’s 11 sectors, industrials suffered the steepest percentage decline, while healthcare stocks led gainers. The upward march of benchmark yields pushed the 30-year fixed mortgage rate to a near three-year high last week, according to the Mortgage Bankers Association. Housing and homebuilders fell 2.3% and 2.9%, respectively.

Chip stocks, which have surged more than 80% year to date, dropped 1.2%. SpaceX lost 2.5% following media reports that Elon Musk’s aerospace firm was seeking $40 billion in financing to fund purchases of Nvidia chips.

Declining issues outnumbered advancers by a 3.34-to-1 ratio on the New York Stock Exchange and by 2.37-to-1 on the Nasdaq. The S&P 500 posted 9 new 52-week highs and 12 new lows, while the Nasdaq recorded 32 new highs and 250 new lows. Volume on U.S. exchanges totaled 16.21 billion shares, below the 17.57 billion average over the prior 20 sessions.

Broader Market Stress

The retreat from records was not limited to headline indexes. According to a separate report, the equal-weighted S&P 500 remains more than 5% below its record high, while the interest-rate-sensitive Russell 2000 trades more than 8% below its all-time peak, underscoring a rally concentrated in a handful of large-cap names.

The sell-off also extended to Canadian markets, as reported by TradingView. The S&P/TSX Composite Index fell more than 1% below 35,500 as elevated oil prices and rising bond yields weighed on financial and mining stocks.

Earnings Season in Focus

Attention now shifts to third-quarter earnings, with a spate of high-profile financial firms expected to report next week. Analysts currently forecast aggregate S&P 500 earnings growth of 30.6% year-over-year for the July-through-September period, according to LSEG. Energy-sector profits are projected to surge 114.7%, while technology earnings are expected to jump 66.5%.

Investors are likely to scrutinize whether massive expenditures on artificial intelligence technology are beginning to show results and to look for clues on the health of the U.S. consumer amid mounting inflationary pressures.