The 10-year Treasury yield broke above 5.36% early Wednesday, its highest since April 2002. Soaring borrowing costs crushed valuations, and all three major U.S. indexes slid — the Dow Jones Industrial Average at one point down nearly 600 points intraday.
The Dow fell about 1.1%, nearly 600 points intraday (Investopedia); Investor's Business Daily put the drop above 500 points, Barron's at 0.9%, or 483 points. The Dow remains roughly 5% below its August 5 record close (Reuters). The S&P 500 dropped 0.6%–0.7%, retreating from Tuesday's record close of 7,818.93 (AP); the Nasdaq Composite fell 0.7%–0.8%, also stepping back from consecutive record highs. The Russell 2000 small-cap index, more sensitive to borrowing costs, lost over 1%.
The shock came from the bond market. The 10-year Treasury yield topped 5.36% early Wednesday — the highest since April 2002 — trading around 5.32%–5.35% intraday, up from Tuesday's 5.29% close. The 30-year yield climbed to 5.70%–5.71%, also a 24-year high. "The key driver of today's trading is the direction of yields," said Peter Cardillo, chief market economist at Spartan Capital.
Tech stocks that hit records Tuesday on AI optimism became Wednesday's casualties. Semiconductors led the decline: the VanEck Semiconductor ETF (SMH) gapped down 1.5%; Seagate (STX) fell over 1% more after Tuesday's 9% plunge, and Western Digital (WDC) dropped nearly 2%, breaking below its 200-day moving average, on fears that Toshiba's expansion will squeeze memory-chip pricing power. Premarket, Micron was down 2.2% and Marvell 1.2%. Frank Cappelleri of CappThesis noted the S&P was overbought after four straight up days in October — and that only 24 constituents hit 52-week highs when the index set its Tuesday record, "a warning signal." SpaceX fell 2.1% premarket (the FT says it is seeking $40 billion in financing to buy Nvidia chips); Intel rose 1.3% (Reuters).
Houthi missile and drone strikes on Saudi military facilities and airports pushed Brent crude up 1.3% to $101.88, with WTI up about 0.5% to roughly $90. Energy-supply worries on top of elevated borrowing costs are lifting inflation expectations again. Bitcoin also fell to about $83,000, after approaching $87,000 earlier in the week.
Two events dominate the rest of the day: the results of today's $39 billion 10-year Treasury auction at 1 p.m. ET, and the Federal Reserve's September meeting minutes at 2 p.m. ET — markets are hunting for officials' stance on inflation and the path of future rate moves. CME FedWatch shows about a 19% chance of a hike at the late-October meeting versus 78% for no change, but an 83% chance of at least a 25-basis-point hike in December. Third-quarter earnings season kicks off next week, with several banks reporting first.