U.S. equities retreated on Tuesday, with the Dow Jones Industrial Average leading a broad market decline as rising bond yields dampened investor sentiment. The blue-chip index closed at 49,364.31, down 0.65%, while the S&P 500 slid 0.67% to 7,353.79 and the Nasdaq Composite dropped 0.84% to 25,870.71.
The 10-year Treasury yield touched 4.687% during the session, its highest level since January 2025, before easing to around 4.65%, according to Reuters. The uptick in yields reignited concerns about borrowing costs and equity valuations, particularly for growth-oriented stocks that rely on future cash flows.
“One hundred percent of the story is yields,” Ben Sullivan, chief investment officer at AE Wealth Management, told Reuters. He noted that investors are beginning to accept that inflation and oil prices may remain elevated for longer than previously anticipated, a shift that has fueled the bond selloff.
Oil prices remained elevated, with Brent crude holding above $110 a barrel as geopolitical tensions near the Strait of Hormuz kept traders on edge. U.S. gasoline prices continued to climb, according to the Associated Press, adding to inflationary pressures.
Market participants are now pricing in a roughly 40% probability of a quarter-point rate hike by the Federal Reserve in December, according to Reuters data. A Reuters poll also indicated that most economists do not expect the Fed to cut rates this year. Aditya Bhave, head of U.S. economics at Bank of America, told Reuters that “both hikes and cuts are feasible,” but the baseline forecast is for rates to remain unchanged, with a cut more likely in 2027.
The tech-heavy Nasdaq was the weakest of the three major indexes, putting the spotlight back on artificial intelligence stocks. Nvidia (NVDA) is set to report earnings on Wednesday, and its results could determine whether the tech sector can sustain its recent rally, the Associated Press noted. Home Depot (HD) also provided insight into consumer and housing trends, with CEO Ted Decker telling AP that demand is tracking roughly flat year-over-year amid “greater consumer uncertainty and housing affordability pressure.”
The bond selloff may not be over. Gregory Faranello, head of U.S. rates strategy at AmeriVet Securities, told Reuters that the Treasury slide “can definitely continue.” ING’s Padhraic Garvey added that the 10-year yield could rise to 4.75%, which would further pressure the Dow, S&P 500, and high-growth tech stocks.
Dow moves are influenced by its price-weighted structure, where higher-priced stocks have a greater impact on the index than lower-priced ones. This differs from the S&P 500 and Nasdaq, which are weighted by market capitalization.
Investors are now looking ahead to the release of the Federal Reserve’s minutes from its latest meeting on Wednesday, which could offer clues on the central bank’s policy path. Combined with Nvidia’s earnings report, the data will provide a clearer picture of the economic and corporate landscape. For now, bonds remain the dominant driver of market direction.
