US stock markets closed lower on Wednesday, with the S&P 500 declining 0.6% and the Nasdaq 100 falling nearly 1% amid profit-taking in mega-cap stocks. According to Upstox, the Dow Jones fell over 550 points, with the S&P 500 plunging 0.6% and the Nasdaq 100 falling 200 points. This decline comes after the S&P 500 hit a fresh all-time high in the previous session before reversing course. The small-cap Russell 2000 underperformed its larger cap counterparts, highlighting concerns about market breadth. The decline in US stocks comes after Treasury yields rose, with the 10-year Treasury yield crossing 5.35% on Wednesday, bringing back fears of higher-for-longer interest rates. This comes as the bond sell-off continues over the past six weeks amid concerns of investors over inflation and elevated energy prices. Overseas bond markets also saw pressure, with the yield on the 10-year French bond climbing 12 basis points to 4.87% and the 10-year U.K. Gilt yield rising 7 basis points to 5.44%.
Brent crude oil prices surged above $101 per barrel on Wednesday, with WTI crude jumping to $89 per barrel, as reports of Iranian attacks on oil vessels instilled uncertainty back into energy markets. According to Upstox, the crude oil prices bounced back, paring the majority of the losses made during the week. This latest surge comes after crude oil prices had recovered as recovering Middle East exports and emergency-reserve measures had reduced immediate supply anxiety, but the sharp intraday recovery shows that the geopolitical premium has not disappeared. In the wake of Tuesday's stock market rally, Brent crude briefly crept above $100 per barrel and the 30-year Treasury bond yield touched a 24-year high. Iran war-related supply concerns have led to soaring oil prices, which in turn have revived inflation worries and raised the chances of a prolonged central bank rate hiking cycle.
US Treasury yields climbed significantly, with the 10-year Treasury yield crossing 5.35% on Wednesday, bringing back fears of higher-for-longer interest rates. This comes as the bond sell-off continues over the past six weeks amid concerns of investors over inflation and elevated energy prices. Following the upward march of benchmark Treasury yields, the 30-year fixed mortgage rate hit 7.49% for the week ended October 2, according to the Mortgage Bankers Association. This marks the seventh weekly increase in mortgage rates, with the spike largely driven by Federal Reserve's tightening monetary policy stance and surging Treasury yields. Consequently, mortgage applications fell 4.2% in the week ended October 2, a fifth week of consecutive decline. The 30-year Treasury yield was down less than 1 basis point at 5.659%, after rising on Monday to levels last seen in May 2002, while the 2-year Treasury yield was down more than 3 basis points at 4.80%.
Despite the broader market rout, chip stocks continued to extend their rally on Wednesday, with shares of Micron, SanDisk Corporation, and Intel Corporation among the top gainers, surging as much as 3%. According to Upstox, chip stocks, which had soared over 80% so far this year, ended the session lower, with the Philadelphia chip index falling more than 2% in the previous session. Meanwhile, among the megacap stocks, shares of Nvidia, Alphabet, Microsoft, SpaceX, and Meta Platforms were among the top losers, falling as much as 2%, while Amazon and Apple Inc. share prices surged up to 1%. SpaceX shares retreated following Bloomberg reports that the company is planning to issue fresh debt worth $40 billion to buy NVIDIA chips for its data centres. A Bloomberg report cited that billionaires tied to the AI industry, particularly from companies like NVIDIA and Amazon, were among the top insider sellers in the tech stocks amid turbulent times.
Minutes from the US Federal Reserve's September monetary policy meeting, at which the central bank unanimously approved its first interest rate hike since July 2023, revealed divisions over the rationale of the increase. According to The Economic Times, some participants saw a hike as necessary to keep the impact of energy price shocks at bay, while others felt the increase was necessary to curb demand-driven inflation. Financial markets are currently pricing in less than a 20% likelihood that the Fed will implement a second consecutive rate hike at the conclusion of its October meeting, down from 37.6% a week ago, per CME's FedWatch tool. "The market's Fed expectations are going to seesaw as it gets new bits of data," Martin said. "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."
