Stocks Plummet as Bond Yields Soar to Two-Decade High

Stocks took a hit on Thursday as bond yields rose to their highest level in nearly two decades. The S&P 500 Index fell by -0.48%, while the Dow Jones Industrial Average dropped by -0.33% and the Nasdaq 100 Index declined by -0.73%. This selling pressure was triggered by crude oil prices rebounding from overnight losses, which lifted bond yields and dampened market sentiment.

The 10-year T-note yield surged to a 19-year high of 5.06%, increasing the odds of a Fed rate hike at next month's FOMC meeting to 75% from 53%. This rise in bond yields was also fueled by hawkish comments from Fed Governor Michael Barr, who stated that further policy adjustments may be necessary to bring inflation down to target.

On the economic front, US manufacturing PMI unexpectedly rose to a four-year high of 57.0 in September, beating expectations and supporting stocks but pushing bond yields higher. However, this uptick was short-lived as supply pressures weighed on T-notes, with $28 billion of 2-year floating-rate notes and $70 billion of 5-year T-notes set to be auctioned later today.

The OECD raised its US GDP forecast for 2026 by +0.2% to 2.2%, while cutting its inflation forecast for the same year by -0.1% to 3.6%. The Eurozone Sep S&P composite PMI unexpectedly rose to a three-year high of 53.1, stronger than expectations and supported by the OECD's raised GDP forecast.

With bond yields at their highest level in nearly two decades, markets are discounting a 75% chance of a +25 bp Fed rate hike at next month's FOMC meeting. Meanwhile, chipmakers and AI stocks continue to slide, weighing on the broader market and giving back some of Tuesday's gains.