Oil Surges Past $100, Squeezing US Stocks

US stocks dipped on Wednesday as Brent crude prices surged back above $100 a barrel and Treasury yields rose to their highest level since November 2023. The increase in oil prices is sending alarm bells ringing among investors, who worry that higher gas and shipping costs could contribute to stubborn inflation.

The jump in energy prices tends to grab market attention because it directly impacts headline inflation. Investors are concerned that if inflation remains sticky, bond investors will demand higher yields, leading to a rise in the discount rate used to value stocks.

Energy was the only sector to gain in the S&P 500, while the broader index and Nasdaq slipped as the 10-year Treasury yield hit its post-November 2023 high. The US Treasury Department's announcement of a bond buyback did little to calm markets, with plans to purchase up to $6 billion of 10- to 20-year Treasuries.

With producer price data due on Thursday and consumer inflation expected on Friday, futures markets are implying a 60% chance of a Federal Reserve rate hike at next week's meeting. The uncertainty is putting pressure on growth stock valuations, particularly in long-duration stocks whose profits are further in the future.