US equities closed sharply lower on Thursday as crude oil prices surged past $100 a barrel and Treasury yields climbed, reinforcing expectations that the Federal Reserve will raise interest rates at its meeting next week. The Dow Jones Industrial Average dropped 400 points, or 0.6%, while the S&P 500 fell 0.58% and the Nasdaq Composite lost 0.65%.
The selloff was driven by a continued spike in energy prices, with West Texas Intermediate crude settling at $102.95 a barrel, up 7.1% on the day—its highest close since May 19. WTI has now gained 52.9% since the start of the US-Iran conflict in late February and is up 78.5% year-to-date. Brent crude also traded above $108 during the session, reflecting ongoing disruptions to shipping through the Strait of Hormuz and the Red Sea, which have heightened concerns about supply shortages.
The jump in oil prices pushed the 10-year Treasury yield above 4.945%, its highest level since at least October 2023. Higher yields typically pressure equity valuations and raise borrowing costs for companies and consumers, weighing on risk appetite. High-beta chip stocks, which had been among the strongest performers in the recent rally, were hit particularly hard: Intel and Micron Technology each fell 5%.
Investors were also focused on inflation data. A producer price index report released Thursday showed a 0.4% monthly increase in August, in line with expectations, while the annual rate stood at 5.4%—well above the Fed's 2% target. The PPI report comes ahead of Friday's consumer price index release, which is expected to provide further clues on the central bank's policy path. Both PPI and CPI feed into the personal consumption expenditures price index, the Fed's preferred inflation gauge.
According to CME FedWatch, fed funds futures were pricing in a 74% probability of a quarter-point rate increase following next week's meeting, up from earlier in the week. The combination of rising oil prices and higher Treasury yields has intensified concerns that inflation could remain stubbornly elevated, even as investors weigh the outlook for growth and employment.
The major averages entered Thursday after a three-day losing streak. The S&P 500 is now nearly 3% below its record closing high from August 13, though it remains up 11% for the year. The benchmark is trading at roughly 19 times expected earnings, its lowest valuation since April 2025, even as earnings forecasts remain strong.
In individual stock moves, Nvidia and Micron weighed on the S&P 500, while Apple rallied a day after launching its $1,999 iPhone. Macy's shares fell despite raising its annual forecasts, and American Eagle Outfitters dropped to its lowest level since October after maintaining its annual comparable-sales outlook.
Market participants now turn to Friday's consumer inflation data for further indications of how oil prices and broader price pressures could influence the Fed's decision. As crude's rally shows no signs of abating, the path of monetary policy remains tightly tied to energy costs and their ripple effects across the economy.
This article is for informational purposes only and does not constitute financial advice.
