U.S. stocks retreated Wednesday as rising Treasury yields and renewed pressure from oil prices interrupted Wall Street’s recent record-setting advance.
The Dow Jones Industrial Average fell more than 300 points during afternoon trading, while the S&P 500 and Nasdaq Composite also declined after both indexes reached record closing highs Tuesday.
The larger concern came from the bond market.
The 30-year U.S. Treasury yield reached a 24-year high as a global sovereign-bond selloff continued to push borrowing costs higher.
Brent crude also briefly moved above $100 a barrel as continuing Middle East supply concerns revived inflation fears.
Together, higher energy prices and rising long-term interest rates complicate the outlook for monetary policy.
Markets now see only about a 19% probability of another Federal Reserve increase in October, down sharply from roughly 38% a week earlier.
The rise in yields is particularly important for equities because higher Treasury returns increase the discount rate applied to future corporate earnings while making government bonds more competitive with stocks.
Rate-sensitive areas were among Wednesday’s weakest performers. Housing and homebuilder shares fell as mortgage and Treasury rates remained elevated, while semiconductor stocks also declined.
The market’s next test is whether the bond selloff stabilizes or long-term yields continue climbing into the beginning of third-quarter earnings season.
Investors will also be watching whether higher financing costs begin affecting corporate investment and consumer demand.
