Market Volatility Rises as 10-Year Yield Hits New High
US stock markets dropped on Tuesday after the sharp decline on Monday, despite some sectors showing signs of recovery. The S&P 500 fell by 0.45%, the Nasdaq dropped 0.78%, and although the Philadelphia Semiconductor Index rose 0.4%, it barely counts as a recovery following the nearly 6% plunge on Monday.
The recent market performance is attributed to high oil prices, which are pushing up inflation, and the 10-year US Treasury yield reaching a new high of 5.04%. The two events are connected by the same logic: when oil prices rise, it's not just expensive gasoline that concerns investors, but the spillover of energy costs to the entire economy.
As diesel futures hit a record high and WTI crude rose above $106, the bond market immediately repriced inflation may not come down as easily as previously expected. The Federal Reserve will find it difficult to ease its policy if inflation does not fall, making the subsequent interest rate path the key factor determining the trend of the US stock market.
The 10-year US Treasury yield is now the most important valuation anchor for the US stock market, and when it stands above 5%, low-risk assets can generate very high returns. This makes it harder for technology stocks, growth stocks, and AI concept stocks to maintain their valuations.