Wall Street Retreats as Crude Surges Past $102 and Treasury Yields Spike

TLDR

• Major US indices declined Friday amid surging bond yields and elevated oil prices
• Treasury yields climbed with the 10-year benchmark crossing 5%, weighing on equities
• Crude oil prices exceeded $102 per barrel, intensifying inflation worries
• Following this week’s 25 basis point rate increase, markets anticipate additional Fed tightening
• Probability of another 50 basis points in rate increases this year jumped to 44.3%

Major US equity benchmarks including the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite retreated on Friday as surging Treasury yields and elevated crude oil prices erased earlier session gains.

The Dow declined approximately 200 points, representing a 0.4% loss. The S&P 500 shed 0.2%, while the Nasdaq experienced a 0.1% decline.

The market action unfolded during a “triple witching” session, when options and futures contracts expire simultaneously across multiple traded instruments. Joe Mazzola, head trading strategist at Charles Schwab, cautioned that market volatility might intensify next week as investors adjust positions ahead of quarter-end.

The 10-year Treasury yield pushed back above the 5% threshold, while the 2-year yield advanced to 4.75%. Elevated yields typically create headwinds for equities by increasing borrowing costs and enhancing the relative appeal of fixed-income securities.

Oil Adds to Pressure

WTI crude oil futures advanced 0.9% to approximately $102.82 per barrel after experiencing early morning weakness. Energy prices have remained elevated as supply disruptions in the Strait of Hormuz, connected to the ongoing Iranian conflict now entering its seventh month, continue driving prices higher.

BREAKING: Saudi Arabia has informed European refiners that they will be allocated no crude oil next month amid the East-West pipeline shutdown, per Bloomberg.

European customers normally receive Saudi Arabian crude oil shipments on “term contracts,” which are meant to ensure a…

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Market analysts indicate that the energy price shock is creating additional challenges for central banks worldwide as they attempt to manage inflation.

The Federal Reserve implemented a 25 basis point rate increase this week, marking its first adjustment in three years. The decision had been broadly anticipated by markets, with equities initially rallying following the announcement.

However, market confidence that a single rate increase will adequately address inflation remains limited. In an interview with Yahoo Finance this week, JPMorgan Chase CEO Jamie Dimon stated: “It’s not clear to me we’ve slayed inflation.”

Rate Hike Bets Rise

Market participants are increasingly pricing in additional monetary tightening. Data from the CME FedWatch Tool shows that the probability of an additional 50 basis points in rate increases this year climbed to 44.3% on Friday, up from 41.7% the previous day. Meanwhile, the likelihood of rates remaining unchanged dropped to 9.8% from 11%.

Oil prices falling below $100 earlier in the week had provided temporary market relief. However, prices have subsequently rebounded, maintaining upward pressure on inflation expectations.

Semiconductor stocks largely maintained their ground this week following a mid-week correction. The PHLX Semiconductor index registered only modest weekly losses. The earlier selloff had been partially attributed to calls from Anthropic and OpenAI for moderation in AI development pace.

The Bank of Japan also implemented a rate increase this week, pushing borrowing costs to their highest level in 31 years, introducing additional complexity to global market dynamics.

With an absence of significant earnings releases or economic data scheduled for Friday, market participants remained focused on potential Fed actions should inflation prove persistent.

The Dow was tracking toward a weekly loss heading into the closing bell.