US Stocks Plummet as Strong Economy and High Oil Prices Fuel Inflation Fears
US stocks took a hit on Wednesday after a strong economic report and higher oil prices sent bond yields soaring, raising concerns about inflation. The S&P 500 fell 0.7% from its previous day's close, while the Dow Jones Industrial Average dropped 299 points or 0.6%. The Nasdaq composite slid 1.1% from its all-time high.
The 10-year Treasury yield jumped to 5.12%, a significant move that has investors worried about the impact on the economy and stock prices. Yields have been climbing steadily since bottoming out during the COVID pandemic, with recent gains driven by concerns over inflation, government debt, and other economic factors.
The strong economic report showed U.S. business activity surging to its strongest level in over five years, indicating a potentially inflationary environment. Businesses are also facing rising costs due to expensive oil, which could lead to higher prices for consumers. The price of Brent oil rose 3.5% to $102.78 per barrel after talks between US and Iranian officials failed to yield any concrete results.
The Federal Reserve's decision to raise interest rates last week in an effort to slow inflation has also put pressure on stocks. Fed Governor Michael Barr warned that further policy adjustments may be necessary to bring down inflation, with traders now seeing a better than 50% probability of another rate hike at the next two meetings.