Stocks fell as $100 oil pushed yields higher: Thursday recap

Stocks fell again on Thursday, pulled lower by rising oil prices and climbing bond yields. The S&P 500 slipped 0.6% to close at 7,591.70. The Dow Jones Industrial Average also gave up 0.6%, finishing at 52,064.10, while the Nasdaq Composite dropped 1.1% to 26,081.72. The Dow shed more than 300 points. It was a fourth straight decline for the S&P 500 and the Dow, and a third in a row for the Nasdaq. The Nasdaq’s drop was the steepest of the three, a reflection of its heavier weighting in technology, where the day’s selling was concentrated. The declines were broad, and they deepened as the session wore on.

The damage fell hardest on growth-sensitive corners of the market. Technology was the weakest of the eleven S&P 500 sectors, off 1.4%, and materials followed with a 1.2% decline. Utilities fell 1.0% and real estate 0.8%, both groups sensitive to the direction of interest rates. Industrials lost 0.7%, health care 0.6%, and financials shed 0.3%. Communication services went the other way, rising 0.6% to lead the market, and consumer staples eked out a fractional gain. Only those two rose. The other nine all ended lower.

Energy sat at the center of it. U.S. crude oil topped $100 a barrel during the session as traders weighed the risk that conflict in the Middle East could keep supply tight. Higher oil feeds straight into inflation expectations, and the Treasury market took notice. The 10-year yield rose to 4.83%, its highest in almost two years. A report from the Bureau of Labor Statistics pointed the same way: producer prices rose 0.4% in August, with more than three-quarters of the increase traced to energy costs, and wholesale prices were up 5.4% over the past year. The figures arrived a day before the government’s more closely watched reading on consumer prices.

The backdrop matters because stocks had climbed for much of the summer on expectations that the Federal Reserve would soon lower interest rates. This week’s firmer inflation signals, and the jump in yields alongside them, have cooled that optimism. Rate cuts look less certain now. Producer prices and oil are both climbing at the same time, and that combination narrows the Fed’s room to move.

Smaller companies took the brunt of the selling. The Russell 2000 fell 1.0%, trailing its large-cap peers as rising borrowing costs weighed on the group. Higher yields tend to press hardest on smaller, more indebted firms, and Thursday followed the pattern. For the week so far, the S&P 500 is down 1.0%. Volatility ticked up as prices fell. The Cboe Volatility Index rose more than 8% to 17.84. That is still a reading that suggests caution rather than alarm.

The main event is still ahead. Friday brings the August consumer price index, the last major inflation figure before the Fed meets next week to set interest rates. Investors will also see the University of Michigan’s preliminary gauge of consumer sentiment. After four sessions of losses, the market goes into that data with little cushion left.

This is a general-market summary for information only — not investment advice, and not a recommendation regarding any security.