Stocks Settle Lower on Higher Bond Yields

The S&P 500 Index ($SPX) (SPY) closed down by -0.22% on Wednesday, the Dow Jones Industrial Average ($DOWI) (DIA) closed down by -0.66%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.21%.  December E-mini S&P futures (ESZ26) fell -0.27%, and December E-mini Nasdaq futures (NQZ26) fell -0.27%.

Stock indexes settled lower on Wednesday amid higher T-note yields and the prospects of additional Fed rate hikes.  The 10-year T-note yield climbed to a 24-year high of 5.36% on Wednesday, weighing on stocks.  Also, the minutes of the September 15-16 FOMC meeting stated that most policymakers said another interest rate hike by year-end would be “appropriate.” 

However, stocks recovered from their worst levels on Wednesday after WTI crude oil gave up an early advance and fell sharply when the EIA cut its 2026 global crude demand forecast to 102.4 million bpd, down from a Jan forecast of 104.8 million bpd.  Crude prices initially moved higher on Wednesday as escalating attacks on oil tankers in the Middle East bolster concerns that oil supplies from the region could be disrupted.

US MBA mortgage applications fell -4.2% in the week ended October 2, with the purchase mortgage sub-index down -2.1% and the refinancing mortgage sub-index down -7.5%.  The average 30-year fixed-rate mortgage rose +19 bp to a 2.75-year high of 7.49% from 7.30% the prior week.

The minutes of the September 15-16 FOMC meeting were hawkish as all 19 officials supported the 25 bp rate hike, as "most participants assessed that another increase in the fed funds target range would likely be appropriate by year end."   Some officials also said inflation risks had become more skewed to the upside, and many said financial conditions still appeared supportive.

US Aug consumer credit rose +$8.281 billion, weaker than expectations of +$15.000 billion.

Earnings optimism is a bullish factor for stock prices.  According to data compiled by Bloomberg Intelligence, Q3 S&P 500 profits are expected to climb by +25% from a year earlier, up from a July estimate of 22%.  Q3 earnings season begins next week when US money center banks report. 

Nov WTI crude oil prices (CLX26) gave up an early rally on Wednesday and closed down more than -1% after the EIA cut its 2026 global crude demand forecast.  Crude prices also fell after the weekly EIA report showed US crude production rose to a record high and gasoline supplies unexpectedly increased.  Crude oil initially moved higher on Wednesday amid concerns about disruptions to Middle East oil supplies due to an increase in attacks on tankers attempting to transit the Strait of Hormuz.  The UK’s Maritime Trade Operations reported on Tuesday that the pace of attacks by Iran has increased in recent days, with nine vessels targeted over the last several days.  On Tuesday, crude prices fell to a 1-month low on signs that more oil supplies are coming out of the Middle East.  Shell Plc said oil flows out of Hormuz have increased to about 80% of prewar levels.

Markets are discounting a 17% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.

Overseas stock markets settled lower on Wednesday.  The Euro Stoxx 50 tumbled to a 3.75-month low and closed down -1.47%. China's Shanghai Composite did not trade, with markets in China closed for the week-long Golden Week holidays.  Japan's Nikkei-225 Stock Average closed down -0.92%.

Interest Rates

December 10-year T-notes (ZNZ6) closed down by -0.5 of a tick on Wednesday.  The 10-year T-note yield climbed to a new 24-year high on Wednesday at 5.362% and finished up +0.3 bp to 5.282%.  T-notes were under pressure on Wednesday as higher crude oil prices raised inflation expectations.  The 10-year breakeven inflation rate rose to a 3-week high of 2.389% on Wednesday.  Also, the hawkish minutes of the September 15-16 FOMC meeting were bearish for T-notes.

However, T-notes recovered nearly all of their losses on Wednesday after WTI crude oil gave up an early advance and fell more than -1%, easing inflation expectations.  Also, strong demand for the Treasury’s $39 billion auction of re-opened 10-year T-notes gave T-note prices a boost as the auction had a bid-to-cover ratio of 2.77, well above the 10-auction average of 2.52 and the most in 10 years.

European government bond yields were mixed on Wednesday.  The 10-year German bund yield fell -0.3 bp to 3.475%.  The 10-year UK gilt yield rose +6.8 bp to 5.443%.

German Aug industrial production rose +2.0% m/m, stronger than expectations of +0.5% m/m and the largest increase in 17 months.

Markets are discounting a 12% chance of a +25 bp ECB rate hike at the ECB’s next meeting on October 29.

US Stock Movers

Weakness in chipmakers and AI stocks on Wednesday weighed on the broader market.  Microchip Technology (MCHP) and NXP Semiconductors NV (NXPI) closed down more than -3%, and Analog Devices (ADI), ARM Holdings Plc (ARM), Qualcomm (QCOM), and Texas Instruments (TXN) closed down more than -2%.  Also, Lam Research (LRCX), Western Digital (WDC),  Applied Materials (AMAT), and ASML Holding NV (ASML) closed down more than -1%. 

Cryptocurrency-exposed stocks were under pressure Wednesday as Bitcoin (^BTCUSD) fell more than -2%.  Iren Ltd (IREN) closed down more than -6%, and Strategy (MSTR) closed down more than -6% to lead losers in the Nasdaq 100.  Also, BitMine Immersion Technologies (BMNR) and MARA Holdings (MARA) closed down more than -5%, and Bullish (BLSH) and Circle Internet Group (CRCL) closed down or than -4%.  In addition, Coinbase Global (COIN) and Galaxy Digital Holdings (GLXY) closed down more than -3%, and Robinhood Markets (HOOD) and Riot Platforms (RIOT) closed down more than -2%. 

Home builders and building suppliers retreated on Wednesday after the 10-year T-note yield rose to a new 24-year high, boosting mortgage rates and weighing on housing demand.  Builders Firstsource (BLDR) closed down more than -4%, and DR Horton (DHI), Pulte Group (PHM), KB Home (KBH), and Toll Brothers (TOL) closed down more than -3%.  Also, Lennar (LEN) closed down more than -1%.  

Defensive pharmaceutical stocks moved higher Wednesday as the broader market declined.  Eli Lilly (LLY) and Ultragenyx Pharmaceutical (RARE) closed up more than +2%, and Amgen (AMGN) closed up more than +2% to lead gainers in the Dow Jones Industrials.  Also, Gilead Sciences (GILD) and Pfizer (PFE) closed up more than +1%, Vertex Pharmaceuticals (VRTX) closed up +0.66%, Merck & Co (MRK) closed up +0.60%, and Regeneron Pharmaceuticals (REGN) closed up +0.46%. 

Farm equipment makers fell on Wednesday after the FTC and USDA launched an inquiry into the agricultural equipment market, including potential anticompetitive conduct.  Caterpillar (CAT) closed down more than -5% to lead losers in the S&P 500 and Dow Jones Industrials, and Deere & Co (DE) closed down more than -3%. 

Mohawk Industries (MHK) closed down more than -5% after RBC Capital Markets downgraded the stock to underperform from sector perform with a price target of $112.

SpaceX (SPCX) closed down more than -2% as the company is in talks with banks and investors to raise $40 billion to buy chips from Nvidia.

Penguin Solutions (PENG) closed up more than +13% after reporting Q4 net sales of $566.7 million, well above the consensus of $519.9 million.

Micron Technology (MU) closed up more than +4% to lead gainers in the Nasdaq 100 after D.A. Davidson raised its price target on the stock to $3.000 from $2,100.

Earnings Reports (10/8/2026)

AngioDynamics Inc (ANGO), Helen of Troy Ltd (HELE), Novagold Resources Inc (NG), Oil-Dri Corp of America (ODC), Park Aerospace Corp (PKE), PepsiCo Inc (PEP), Rackspace Technology Inc (RXT).

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