U.S. equities opened sharply lower on Tuesday, with the Dow Jones Industrial Average dropping 253 points, as a surge in crude prices and a climb in Treasury yields to multi-year highs dampened investor sentiment. The S&P 500 slipped 0.23%, while the Nasdaq Composite fell 0.30%, extending Monday's tech-led selloff.
AI concerns keep tech under pressure
Technology shares remained under pressure after leading artificial intelligence companies called for a slowdown in advanced model development over safety worries. Alphabet and Microsoft each declined about 1% in early trading. Chipmakers, which suffered steep losses on Monday, traded in a narrower range, though Nvidia rose 1.12% and other AI-linked names like Advanced Micro Devices, Intel, and Micron Technology gained more than 1.6%.
The potential impact of a slower AI development pace on corporate spending and computing infrastructure demand remains unclear, adding to broader market uncertainty. Investors are already grappling with above-target inflation and the prospect of higher borrowing costs.
In corporate news, Dave & Buster's Entertainment tumbled more than 7% after reporting second-quarter revenue below expectations. Waystar shares climbed 6.7% on reports that the healthcare software company is exploring strategic options, including a potential sale.
Oil and yields fuel inflation worries
Oil prices extended gains as Middle East tensions showed no signs of easing. Brent crude rose 0.6% to $106.31 a barrel, while West Texas Intermediate futures climbed 1.2% to $102.59. Saudi Arabia's shutdown of a key pipeline bypassing the Strait of Hormuz added to supply concerns, intensifying fears that an energy shock could push inflation higher.
The yield on the benchmark 10-year U.S. Treasury note reached 5.041%, its highest level since 2007, before easing to around 4.996%. Higher yields increase the appeal of lower-risk government debt, reducing the relative attractiveness of equities and pressuring valuations, particularly for sectors with earnings expected further in the future. For more on how rising yields are squeezing valuations, see our analysis of stocks facing the biggest valuation squeeze.
Fed decision in focus
Markets are bracing for the Federal Reserve's policy decision on Wednesday. Fed funds futures indicate a roughly 92% probability of a quarter-point rate hike from the current target range of 3.5% to 3.75%. Recent data showed consumer prices accelerated in August, with underlying inflation posting its largest increase in four months.
Barclays strategists noted that higher interest rates have already pressured equity valuations. They warned that a sustained move above 5% for 10-year yields could become a more persistent headwind for stocks. While they maintain a constructive base case for equities due to continued earnings momentum, they cautioned that the risk of a sharper market repricing would increase if yields move materially higher. The recent rise in 10-year yields above 5% has already heightened concerns.
As the Fed decision looms, investors are also watching the gold market, which remains near $4,300, and the broader impact of oil and yields on global markets, including UK bond yields.
This article is for informational purposes only and does not constitute financial advice.
