At the beginning of the week, the majority of the United States stock was down, the rate of return on the debt market was up again, oil prices were running repeatedly between the situation in the Middle East and the signals of negotiations, and the three folds put the market in defensive positions. As of Wednesday, midday, the Standard 500 index fell by about 0.6 to 0.8 per cent, about 1.1 to 1.3 per cent lower than the previous month ' s record; the Dow Jones industry average index fell by about 311 to 348 points, ranging from 0.6 to 0.7 per cent; and the NASDAQ composite index fell by about 1 to 1.3 per cent, also below its historical high. The decline is not a single-block matter, and there are varying degrees of pressure on technology, banking and some alternative assets, with the market focusing on two variables: whether oil prices will continue the previous fall and whether long-end national debt yields will continue to rise.
The change in the debt market was at the heart of the fall. The 10-year rate of return on United States Treasury debt exceeded 5.1 per cent, reaching its highest level since July 2007, and the rate of long-term national debt return remained stable near years of high levels. The 30-year-old rate of return on national debt rose by about 10 basis points that day, approaching 5.4 per cent, which is not far from the peak since 2007, when it began last Tuesday. The evolution of the bond market has been interpreted as re-entering the “higher and longer” model, whereby the market is no longer eager to bet on the Fed’s fast-reducing interest rate, but rather to accept the reality that interest rates may remain at higher levels for longer periods of time. For ordinary investors, this means that the prices of bonds or fixed-income products are subject to further downward pressure, while borrowing-dependent households and businesses continue to face high financing costs.
Oil prices fluctuated over this period and did not surge in one direction, but did not continue the previous downturn. Many media reports indicate that oil prices have re-established themselves in a period of backwardness, partly because the situation in the Middle East remains uncertain and partly because the market's judgement of supply and demand is rapidly adjusting. At the same time, news of the resumption of negotiations in the Middle East had led to a fall in oil prices from the top, indicating that markets were sensitive to diplomatic signals. Oil prices did not break significantly, but were sufficient to bring back inflation concerns that had previously been eased by the fall in oil prices. For industries dependent on transport, logistics and energy costs, each rebound in oil prices directly affects cost expectations; for households in general, the movement of gasoline and heating costs remains an important variable of the billing burden.
Another factor driving the upswing in rates of return and stock market pressure is the intensity of economic data beyond the expectations of some market participants. A report on United States business activities shows that the current expansion of the economy is stronger than anticipated, which would have been a good thing, but in a context where inflation is not yet fully in place, strong data tend to raise fears that price pressures will persist, thereby reducing market expectations of interest rate easing. The strong economic data are usually good for the stock market, but when it comes at the same time as the rebound in oil prices and the sale of debt markets, the market is more concerned about whether “inflation will be harder to return”. This concern is reflected in the withdrawal of funds from interest rate-sensitive segments to areas more sensitive to valuation and profitability in Wednesday transactions.
The performance of the technology sector is particularly noteworthy. The fall in NASDAQ led the way, and the chip unit as a whole weakened, partly because of the renewed focus on AI security. It was reported that an AI-related security incident raised concerns about technical risks, which led to the suppression of parts of the semiconductor and AI-related stocks. However, not all of the technology units went down simultaneously, and Weidar went off the market at the time, suggesting that there was a lack of convergence of views within the market on the AI industry chain: there were concerns about security and regulatory risks, and some were still looking at recalculation and demand. The former places some of the chips under pressure, while the latter gives resistance to a small number of tap shares. This division suggests that the market is not simply “selling technology” but is reassessing which companies' valuations can support a higher interest rate environment.
The banking unit was also not spared. Banking units such as the banks of rich countries were down at that time, and there were reports that a message from Meta had heightened concerns about risks in the area of AI and further affected the mood of the bank board. While the bank equity should have been sensitive to the interest rate environment, it would have followed the pressure when the market was concerned about the demand for credit, the quality of assets and the macro outlook. At the same time, stocks related to quantum calculations were recorded down Tuesday, with ion quantum, D-Wave and Rigetti falling by about 5 to 6 per cent, respectively, which was partially reported as a result of the financial rotation caused by the upward movement of interest rates. With regard to the price of pigs, CME stock stock of pigs declined by about 35 per cent, leading to low futures of pigs, suggesting that large commodities are also being re-pricing internally according to changes in supply and demand and cost.
Overall, the decline was not a problem for a company or industry, but a result of the combination of interest rate expectations, oil prices and economic data. The 10-year sovereign debt yield rate exceeded 5.1 per cent and the 30-year period reached 5.4 per cent, implying that long-term interest rates had returned to their highs for many years; that, while oil prices had not continued to surge, there had been enough repetition between the situation in the Middle East and negotiating signals to keep inflation expectations volatile; and that strong data on economic activity had made the market more cautious about the Fed’s next move. Together, they create a double pressure on stock market valuation and debt market prices. For investors, the current focus is no longer simply on asking “when will the low point be bought back”, but rather on how interest rates, oil prices and inflation will follow.
Next, the market will continue to focus on several key points. The first is whether the return on the 10- and 30-year-old national debt can stand steady at the current highs or show a marked fall; if the long-term rate of return continues to rise, debt market sales may be further channelled to stock market valuations, particularly by relying on higher segments of the forward cash flow. The second is whether oil prices can provide a more stable direction between the situation in the Middle East and the progress of the negotiations; if oil prices continue to rebound owing to supply concerns, inflation expectations may rise again, affecting interest rate expectations. The third is whether the follow-up economic data is still strong; if business activity, employment and price data continue to show a strong expansion, the market’s expectations of the Fed’s easing may fall further short, and debt and equity markets face a more realistic interest rate environment. Fourth is whether AI security and regulatory-related news will continue to affect the STIU and related industry chains; if similar security concerns recur, some chips and AI stocks may continue to be subject to additional valuation pressure, while a few companies with a clear competitive advantage may remain relatively stable in volatility.
For different groups, market changes over this period mean different things. Investors holding or planning to buy bonds and fixed-yielding products are mindful that the long-end yield is close to years of high, that the inverse relationship between bond prices and rates of return means that holding bond valuations may continue to be under pressure, and that newly purchased products reassess the holding period and interest rate risk against current rates of return. Investors holding equities, especially growth and technology units, which are interest-sensitive, should be mindful that the market is re-pricing valuation based on expectations of higher interest rates and that plate heat alone may not be as easily driven as previously. Lending households and SMEs continue to treat “interest rates may last longer” as a reality for arranging cash flow and repayment schemes rather than simply waiting for interest rates to decline rapidly. Practitioners in the energy, transport and logistics industries are concerned about the volatility of oil prices between the situation in the Middle East and the signals of negotiations, as changes in the cost end directly affect pricing and profit space. For their part, ordinary households are mindful of the impact of changes in oil prices and inflation expectations on their daily expenditures, particularly those related to fuel, heating and transportation.
In general, the decline in US stock at the beginning of the week was the result of the combined effect of higher rates of return on debt markets, oil price volatility and inflation concerns brought about by economic data. Markets are now under a combination of “war and negotiating signals that make it difficult for oil prices to move in one direction, strong economic data that make interest rate expectations more difficult to relax, and long-term rates of return approaching years of highs”. Next, investors and relevant operators need to focus not on a single point, but on whether there has been a real change in the direction of return rates, oil prices and inflation expectations. As long as long-term interest rates remain close to high levels and oil prices fluctuate in the Middle East situation, economic data continue to show strong activity levels, and market sensitivity to valuation and interest rates will not easily decline.