The S&P 500 slipped Tuesday as the 10-year Treasury yield jumped to its highest level since 2007 and crude oil pushed above $106 a barrel. Traders are now bracing for the Federal Reserve's rate decision Wednesday, with futures pricing a 90% chance of a quarter-point hike.
The S&P 500 traded down about 0.4% on Tuesday. The Dow Jones Industrial Average lost 404 points, or 0.8%, while the Nasdaq Composite dropped 0.8% as well. Losses in the S&P 500 and Nasdaq were softened by gains in AI-linked names, with Qualcomm advancing 5% after a selloff in the sector the prior session.
Treasury yield tops 5% for the first time since 2007
Wall Street's benchmark 10-year Treasury yield reached 5.041% Tuesday before easing to trade up more than 5 basis points at 5.012%. Global bond yields have climbed for weeks as the war between the U.S., Israel, and Iran pushes oil prices higher and stokes fears of inflation.
According to Melissa Brown, global head of investment decision research at SimCorp: "Investors are finally catching up with the concerns." Brown pointed to U.S. government debt passing $40 trillion and oil trading above $100 a barrel as reasons markets are reacting now. Oil's global benchmark price has climbed to over $109 a barrel, up from around $86 at the end of August.
Fed decision looms as hike odds climb
Fed funds futures point to a roughly 90% likelihood of a quarter-point interest rate hike Wednesday, which would lift the target range from its current 3.5% to 3.75%. Barclays strategists said in a Tuesday note that the approach toward the 5% threshold in 10-year yields marks a historically important inflection point for equity valuations.
The U.S. Treasury has meanwhile been buying back bonds in a bid to drive the yield down. Treasury Secretary Scott Bessent was scheduled to appear before the House Financial Services Committee on Tuesday.
Wells Fargo trims S&P 500 target
Wells Fargo strategist Ohsung Kwon has cut his year-end S&P 500 target to 7,700 from 7,950, implying just 1% upside from Monday's close of 7,619.98. He wrote that markets are entering the late stages of the cycle and sees 5% to 10% downside risk before the index reaches his new target.
A 5% decline would send the S&P 500 to 7,239, a level not traded since June. A 10% slide would take it to 6,858, its lowest since mid-April.
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