Wall Street ends lower as oil spikes and the benchmark Treasury yield breaches 5%

By Stephen Culp and Tharuniyaa Lakshmi

NEW YORK, Sept 15 (Reuters) – Wall Street extended its selloff on Tuesday, as rising U.S. Treasury yields, mounting debt concerns and soaring crude prices kept buyers on the sidelines.

All three major U.S. stock indexes extended Monday’s losses as broad risk-off sentiment weighed on nearly every sector but energy. That sector benefited from expanding hostilities in the Middle East, which included new attacks on Saudi Arabia’s energy infrastructure.

“Given rising prices for fuel, especially diesel, given the near-certain outlook for rising rates beginning tomorrow, and given the concerns over the potential slowdown in the AI ecosphere, why step into the market aggressively until some of this clears up?” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

The Federal Reserve has convened for its two-day monetary policy meeting, which is due to culminate on Wednesday with the central bank’s rate decision. With recent economic data showing the labor market on solid footing, while war-related energy price pressures are morphing into broader, systemic inflation, the central bank is expected to implement a 25-basis-point increase to its Fed funds target rate — its first interest rate hike in over three years.

In the wake of last week’s hot inflation data and the near 25% jump in U.S. crude prices over the last two weeks, financial markets have priced in a 94.5% likelihood of a rate hike on Wednesday, up from 33.1% one month ago, according to CME’s FedWatch tool.

Tuz added that while markets will learn the Fed’s decision tomorrow, “the Middle East conflict is a wild card as to how long it might last.”

Front-month West Texas Intermediate and Brent oil settled up 4.4% and 2.9% respectively, while diesel futures closed at a record high.

“This will probably be not a one-and-done, but a series of rate increases,” said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest in Elmhurst, Illinois. “It will be dependent on oil; that is really the source of inflation and it’s starting to seep into other parts of the market.”

As rate-hike bets increased, global bond yields resumed their upward climb, with benchmark U.S. Treasury yields breaching 5% and reaching the highest level since 2007.

Rising interest rates are increasing the pressure on heavily indebted borrowers, including companies that have placed big bets on AI.

Those worries exacerbated mounting fears over AI’s destructive potential and growing opposition to the construction of data centers, which came to a head on Monday and dragged the Philadelphia SE Semiconductor index down.

The semiconductor index, which has helped drive broader stock market gains this year, did not meaningfully recover from Monday’s rout, eking out a 0.4% gain.

The Dow Jones Industrial Average fell 328.09 points, or 0.63%, to 52,093.11, the S&P 500 lost 34.25 points, or 0.45%, to 7,585.73 and the Nasdaq Composite lost 204.84 points, or 0.78%, to 25,981.57.

Among the 11 major sectors of the S&P 500, consumer discretionary stocks were the biggest percentage losers, while energy, buoyed by rising crude, advanced 2.3%.

Dave & Buster’s tumbled 19% following the company’s second-quarter revenue miss.

Waystar rose 7.1% after Reuters reported the healthcare software firm is exploring options, including a potential sale.

Weakness in bitcoin was compounded by the U.S. Senate not advancing comprehensive cryptocurrency legislation, in a blow to digital asset companies. Crypto firms Coinbase and Strategy dropped 10.1% and 5.4%, respectively.

Declining issues outnumbered advancers by a 2.56-to-1 ratio on the NYSE. There were 113 new highs and 673 new lows on the NYSE.

On the Nasdaq, 1,439 stocks rose and 3,356 fell as declining issues outnumbered advancers by a 2.33-to-1 ratio.

The S&P 500 posted 14 new 52-week highs and 18 new lows while the Nasdaq Composite recorded 52 new highs and 264 new lows.

Volume on U.S. exchanges was 15.85 billion shares, compared with the 15.14 billion average for the full session over the last 20 trading days.

(Reporting by Stephen Culp; Additional reporting by Niket Nishant and Tharuniyaa Lakshmi in Bengaluru; Editing by Rod Nickel)