Wall Street Highlights: S&P 500, Nasdaq Fall From All-Time Highs On Inflation Worry

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Key takeaways

The S&P 500 and Nasdaq fell from all-time highs due to surging oil prices and inflation worries.
Federal Reserve officials backed a rate decision in September to guard against rising price pressures.
Major cryptocurrencies including Bitcoin and Ether declined alongside global equity markets.

Wall street stocks retreat

A record-breaking run in stocks hit a wall as still-elevated oil prices stoked concerns that potential inflationary pressures could trigger Federal Reserve interest-rate hikes. Those worries sent the S&P 500 down from an all-time high. Brent crude settled around $100 as traders weighed a pickup in Iranian attacks on vessels in the Strait of Hormuz against resilient flows from the Middle East. Ten-year Treasuries bounced from session lows after a solid $39 billion sale, but yields remained near the highest since 2002. Bitcoin fell.

Investors are demanding greater compensation to hold bonds on concerns about inflation, government spending and surging corporate borrowing to finance the artificial-intelligence buildout. Against this backdrop, money markets see high chances of another Fed hike by the end of 2026.

Federal reserve policy outlook

All 19 Fed officials backed the decision to raise interest rates in September, with many supporting the move to guard against the risk of intensifying price pressures, according to minutes of the last monetary-policy meeting.

"Another rate hike is probably coming this year because current policy isn't very restrictive," said David Russell at TradeStation. "With inflation above target and most measures of economic activity strong, price stability is the Fed's dominant mandate."

The striking feature of the Fed minutes is how many routes led officials to the same conclusion, said Lale Akoner at eToro. That makes the case for another hike harder to dismiss, even if the Fed waits for more data first, she added.

Global bond and equity dynamics

"A Fed pause may not bring down long yields if term premiums remain elevated," said Ulrike Hoffmann-Burchardi at UBS Chief Investment Office. "Fixing the curve's long-term problem without fiscal tightening requires two things: productivity-led growth and periods of low real borrowing costs."

She recommends positioning for this by staying invested in AI-driven productivity gainers, diversifying across equities and high-quality fixed income, with a preference for shorter- over longer-duration bonds.

Equity markets face a genuine rival in bonds for the first time in decades, Bank of America Corp.'s Savita Subramanian told Bloomberg Television. She also cautioned that elevated investor sentiment leaves stocks more exposed to disappointment than upside.

Meantime, traders kept a close eye on news related to France's fiscal woes, which are threatening to drag the European Central Bank into the kind of face-off with markets it hasn't seen since the euro area's debt crisis. The nation's finance ministry said it's not changing its bond-issuance strategy.

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