Why are Dow, S&P 500 and Nasdaq falling as Treasury yields hit 24-year high?

Dow, S&P 500 and Nasdaq fall as 10-year Treasury yields hit a 24-year high, while oil prices, inflation worries and Fed rate uncertainty pressure stocks.

US stocks fell on Wednesday as Treasury yields surged to their highest levels in more than two decades. The Dow Jones Industrial Average fell 503 points, or 1%, while the S&P 500 dropped 0.6% and the Nasdaq Composite declined 0.7%.

Dow, S&P 500 and Nasdaq fall as US Treasury yields hit a 24-year high. (REUTERS/Jeenah Moon/File Photo) (REUTERS)

The biggest pressure came from the US bond market. The 10-year Treasury yield jumped more than 8 basis points to around 5.356%, reaching its highest level since April 2002.

The 10-year Treasury yield briefly reached 5.350%, officially moving above its previous high from Monday. The last time the yield reached a similar level was on April 3, 2002, when it hit 5.379%.

The 30-year Treasury yield also climbed sharply. It gained more than 8 basis points to 5.725%, its highest level since May 2002, according to CNBC.

Why are stocks falling?

Higher Treasury yields can put pressure on stocks because borrowing becomes more expensive. When interest rates and bond yields rise, companies and consumers can face higher borrowing costs, making investors more cautious about stocks. The higher yields are also creating problems for banks. Investors are worried that higher interest rates could reduce lending activity and make it harder for banks to grow their businesses.

Bank stocks fell as investors worried that higher interest rates could hurt lending activity. Goldman Sachs dropped nearly 3%, while Citigroup fell more than 2%. Bank of America, Wells Fargo and JPMorgan each declined more than 1%, according to CNBC.

Tech stocks also fall

Technology stocks were also under pressure because of higher borrowing costs. Investors are worried that expensive financing could slow the huge spending needed to build artificial intelligence infrastructure. Several major technology stocks fell. CrowdStrike declined about 3%, while Palo Alto Networks and Meta Platforms each lost more than 2%, according to CNBC.

Oil prices add to worries

Rising oil prices added to concerns about inflation. US crude prices moved back toward $90 a barrel, while Brent crude futures rose nearly 1% to around $101 a barrel, according to CNBC. Higher oil prices can make inflation concerns worse. Investors are watching whether expensive energy keeps price pressures high, which could make it harder for the Federal Reserve to lower interest rates.

Treasury yields keep rising

The jump in oil prices also helped push Treasury yields higher again. Yields had eased in the previous session, but the latest rise in oil prices helped bring back the recent surge in bond yields. Wednesday's stock decline came just one day after the S&P 500 crossed 7,800 for the first time. The index had been helped by strong gains in chipmakers, while lower Treasury yields also gave stocks a boost on Tuesday, according to CNBC.

Investors are now watching the bond market more closely because yields are moving sharply higher. The rise in yields is changing the balance between stocks and bonds and is adding pressure to the broader equity market.

US Treasury bond auction

The Treasury is also preparing to sell $39 billion of 10-year notes on Wednesday. The planned auction is important because investors will be watching demand for the new government debt at a time when Treasury yields are already very high, CNBC reported.

Fed meeting minutes

Investors are also waiting for the Federal Reserve's September meeting minutes. The minutes are expected to give more details about how Fed officials view the US economy and the path for interest rates.

The September Fed meeting was important because the central bank raised interest rates for the first time since 2023. Investors want to know what Fed policymakers are thinking about inflation, economic growth and future rate decisions.

Bull market still in focus

The stock market fall does not mean investors believe the current bull market is over. Nancy Tengler, CEO and CIO of Laffer Tengler, said stocks have become cheaper since January even as the market has reached record highs. Tengler said lower stock valuations could actually help the bull market last longer. She said she is comfortable with the decline in valuation multiples and believes earnings growth will ultimately drive stock prices, according to CNBC.

Gold and silver fall

Gold also fell sharply as the dollar strengthened. Gold dropped to $4,091.20 on Wednesday, its lowest level since August 3, when it fell as low as $4,074. A stronger US dollar is putting pressure on gold. Because gold is priced in dollars, a stronger dollar makes the metal more expensive for buyers using other currencies.

Gold has not fallen below $4,000 since July 20. On that day, gold reached a low of $3,986. Gold mining stocks also came under pressure. The GDX gold miners ETF fell 3.85% and was on track for its worst day since September 28, when it dropped 5.36%. Silver also declined. It fell to $59.23, its lowest level since August 4, when it traded as low as $58.18, according to CNBC.

The three major US stock indexes started Wednesday lower from the opening bell. Shortly after 9:30 a.m. ET, the Dow was down 340 points, or 0.7%, while the S&P 500 fell 0.4% and the Nasdaq dropped 0.5%.

Morgan Stanley's gold view

Morgan Stanley remains positive on gold despite the latest drop. The bank upgraded Gold Fields to Overweight, saying the stock's recent underperformance has created an attractive risk-reward opportunity. Gold Fields has underperformed other major global gold stocks by about 16% this year. Morgan Stanley analyst Christopher Nicholson said much of the uncertainty around the company's Tarkwa mining lease is already reflected in its stock price.

Morgan Stanley also sees a possible benefit from a Northern Star deal. Nicholson said a potential deal could be positive for Gold Fields on a combined-company basis. Morgan Stanley continues to see gold as its top commodity pick. Nicholson expects gold to average $5,050 an ounce in 2027, CNBC reported.

Morgan Stanley said several factors could support gold in the coming years. These include concerns over government debt, possible government action to limit bond yields, changes in oil prices and continued buying by central banks.

Stocks making big moves

Some individual companies were also moving sharply before the market opened. Neogen shares jumped 11% after the food safety company raised its full-year guidance. Neogen now expects fiscal-year revenue of $885 million to $890 million. That is above its previous forecast of $880 million to $885 million and the FactSet analyst estimate of $883.2 million, according to CNBC.

Penguin Solutions also gained more than 4% in premarket trading. The company, which builds platforms for AI factories, reported fourth-quarter results above Wall Street expectations. Penguin Solutions reported adjusted earnings of $1 per share on revenue of $566.7 million. Analysts had expected earnings of 77 cents per share and revenue of $521 million.

Constellation Brands shares fell despite beating earnings expectations. The stock dropped 5% after the company reported fiscal second-quarter earnings of $3.74 per share on revenue of $2.63 billion. Constellation's results were better than analysts expected. Wall Street had forecast earnings of $3.56 per share and revenue of $2.54 billion.

However, weaker parts of Constellation's business worried investors. Beer operating margins fell 160 basis points from a year earlier, while depletions, an important measure of demand, also declined slightly.

Overall, the main story behind Wednesday's market fall is the sharp rise in Treasury yields. The Dow, S&P 500 and Nasdaq are facing pressure as the 10-year yield reaches levels last seen in 2002, while higher oil prices, inflation worries and uncertainty over future Fed policy add to investor concerns.