U.S. stocks pared earlier losses by late Tuesday morning, though major indexes remained firmly in negative territory as elevated oil prices and rising Treasury yields continued to weigh on investor sentiment. The Nasdaq Composite trimmed its decline to 0.76% by 10:59 a.m. EDT, recovering from a steeper 1.16% drop an hour earlier. The S&P 500 was down 0.47% at 7,650.34, while the Dow Jones Industrial Average slipped 0.39%.
Energy Costs and Yields Keep Pressure on Valuations
West Texas Intermediate crude hovered near $88 a barrel, up 2.20% at $87.65, while the 10-year U.S. Treasury yield stood at 4.77%. Brent crude gained 2% to $92.33 following disruptions in the Strait of Hormuz tied to Middle East conflict. Higher energy costs and rising yields are squeezing equity valuations, particularly for growth-oriented technology names that are more sensitive to discount rates.
Economic Data Points to Continued Expansion
New factory data showed the U.S. manufacturing sector continuing to expand, though at a slightly slower pace. The ISM manufacturing index for August came in at 54.6, down from 55.6 in July. The prices paid index remained unchanged at 71.1, marking the 23rd consecutive month of rising input costs. Meanwhile, labor demand stayed robust, with job openings rising slightly to 7.3 million in July, while hires and separations both hovered near 5.1 million.
Sector Performance: Defensive and Energy Lead
At the sector level, defensive and energy names outperformed. Consumer staples (XLP) gained 0.91%, energy (XLE) rose 0.71%, health care (XLV) added 0.63%, and utilities (XLU) climbed 0.52%. Real estate (XLRE) was flat. On the downside, technology (XLK) fell 1.31% and consumer discretionary (XLY) dropped 1.30%, making them the weakest performers. Financials (XLF) slipped 0.28%, materials (XLB) lost 0.78%, industrials (XLI) declined 0.91%, and communication services (XLC) edged down 0.07%.
Notable Stock Movers
Among major stocks, NVIDIA Corp. (NVDA) was down 1.38% at 10:59 a.m. EDT, while Micron Technology Inc. (MU) slipped 0.65%. Energy names advanced, with Exxon Mobil Corp. (XOM) up 1.40% and Devon Energy Corp. (DVN) gaining 1.08%.
Market Breadth and Volume
Market breadth was negative, with four sector funds advancing, six declining, and one unchanged. Trading volume reflected continued interest in tech, with 6.68 million shares of the Invesco QQQ Trust (QQQ) changing hands by 10:59 a.m. EDT, while 1.21 million shares of the SPDR S&P 500 ETF (SPY) traded during the same period.
Rate Outlook and September Seasonality
Analysts see little relief on the rate front. “The balance of risks still points to yields remaining elevated,” wrote Richard de Chazal, macro analyst at William Blair, in a note ahead of the open. The upcoming September payrolls report on Friday will be a key catalyst for rate expectations. Historical data from Fisher Investments, reported by Reuters, shows the S&P 500 has averaged a 0.7% decline in September since 1926.
Risks and Potential Catalysts
Oil prices could shift quickly if diplomatic developments emerge in the Middle East. A drop in yields would likely benefit long-duration technology stocks and narrow the sector gap. Conversely, an additional supply shock could widen the divide between defensive and cyclical sectors. As of 11:00 a.m. EDT, the market continued to reflect an inflation premium, with defensive sectors and elevated crude prices providing the dominant signal.
