Dow opens 120 pts lower as oil surges and Treasury yields stay elevated
US stocks opened lower on Thursday as a renewed rise in oil prices and Treasury yields weighed on risk appetite, with investors turning their attention towards the upcoming earnings season for signs that corporate profits can support equity valuations.
The Dow Jones Industrial Average fell 127 points, while the S&P 500 declined 0.28% and the Nasdaq Composite dropped 0.48%.
The moves followed a weaker session on Wednesday, when all three major US indexes closed lower after Treasury yields reached multi-year highs.
Oil prices surge as Middle East supply risks persist
Brent crude futures jumped about 4.2% to above $104 a barrel as concerns over Middle East supplies intensified following increased attacks on shipping in the Gulf and the Strait of Hormuz.
West Texas Intermediate futures also rose about 4% to around $92 a barrel.
Oil prices have added to inflation concerns because higher energy costs could make it more difficult for the Federal Reserve to bring inflation back towards its 2% target.
The latest increase in crude prices came as geopolitical tensions remained elevated.
The market has also been monitoring developments involving Iran and the potential impact on energy supplies.
The rise in oil prices has contributed to recent volatility across equities, with investors concerned that sustained energy inflation could keep interest rates higher for longer.
Treasury yields remain near multi-year highs
The bond market also remained under pressure on Thursday. The benchmark 10-year Treasury yield rose initially to 5.35%, close to its highest level since 2002. It later dropped seven basis points to 5.28%.
The 30-year Treasury yield climbed more than five basis points to around 5.73%, a 24-year high, and later dropped to 5.66%.
Higher yields have weighed particularly on sectors that are sensitive to borrowing costs.
Technology and bank stocks were under pressure in trading, with Intel and AMD each down 2% and 1.8% respectively, while Bank of America and Citigroup fell around 1%.
Investors were also assessing comments from Federal Reserve Governor Christopher Waller, who indicated that additional rate increases could be needed to bring inflation down to the central bank’s 2% target, while leaving flexibility over the pace of increases.
Markets broadly expect the Fed to leave rates unchanged at its October meeting, although a December increase remains possible.
Earnings season puts corporate profits in focus
The latest market weakness comes as investors prepare for the third-quarter earnings season, which is expected to begin in earnest next week with major banks among the companies scheduled to report.
The S&P 500 is expected to post quarterly earnings growth of around 30%, according to FactSet, while LSEG data puts expected growth at 30.6%.
Technology and energy companies are expected to report some of the strongest growth.
Strong earnings expectations have helped support US equities despite concerns over higher interest rates and geopolitical risks.
Investors will be watching whether companies can meet or exceed expectations as higher borrowing costs and energy prices create additional pressure.
Among individual stocks, Palantir Technologies was an exception to the broader weakness, with shares rising about 4% after Goldman Sachs upgraded the company.
The firm expects further potential expansion in Palantir’s addressable market, driven partly by sovereign AI and bespoke applications.
Wolfspeed shares surged 4.88% after receiving a $1.5 billion conditional loan commitment from the US Department of Defense, while PepsiCo shares rose 0.8% despite the company cutting its annual core profit forecast and announcing additional cost reductions.
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