The sell-off in US government bonds pushed Treasury yields higher, making investors more cautious about stocks. US stocks opened lower on Thursday as investors worried about inflation and rising bond yields.
The Dow Jones Industrial Average fell 0.2%, while the S&P 500 dropped 0.4%. The tech-heavy Nasdaq Composite declined 0.8%. The benchmark 10-year Treasury yield had risen above 5% on Wednesday, reaching its highest level since 2007. The 30-year Treasury yield also climbed to its highest level since 2004. Traders were pricing in a 69% chance of another Fed rate hike in October, according to the CME FedWatch tool. US initial jobless claims fell slightly for the week ending September 19. MGM shares dropped about 10% at the open after the takeover proposal was withdrawn. The 10-year yield returning to levels last seen in 2007 has brought back memories of a very different period for financial markets. The last time the 10-year Treasury yield reached these levels was July 2007. The Nasdaq subsequently lost 56% over the following 16 months during that financial crisis, according to Bull Theory, as cited by Yahoo Finance. Yahoo Finance’s Brian Sozzi cautioned that the current environment should not automatically be treated as a repeat of 2007. The important difference is that today’s market is not currently facing the same confirmed housing and financial-system collapse seen during the 2008 crisis. Earlier reporting noted: US Treasury yields hit 2007 highs: Why rising bond rates are worrying investors Yields on long-term US government bonds have risen to their highest levels in years. Bloomberg reported that yields across several Treasury maturities are now around their highest levels since 2007. Earlier reporting noted: The 30-year US Treasury yield rose as much as 4 basis points on Thursday to 5.44%. That was its highest level since 2004.
That market pricing can change as new inflation, jobs and economic data are released. The main pressure on stocks came from the bond market. Higher long-term Treasury yields can increase borrowing costs across the economy, including for companies, homebuyers and consumers. The broader market is also watching US-China relations. The labor market is showing signs of stability despite the pressure from higher rates. The low level of new claims suggests the US labor market remains relatively strong. However, a strong labor market can also complicate the Fed’s fight against inflation. If employment and economic activity remain strong, policymakers may have less reason to cut interest rates quickly. MGM Resorts shares fell sharply after billionaire investor Barry Diller’s People Incorporated withdrew its proposal to buy the casino and resort company. Costco is another company investors are watching. Costco was scheduled to report its fiscal fourth-quarter results after Thursday’s market close. The key issue for markets now is how long Treasury yields can remain at these elevated levels. Yahoo Finance noted that the global financial crisis began only a few months later as the US housing market collapsed. For stock investors, the biggest concern is the effect of higher borrowing costs on companies and consumers. If Treasury yields remain high, financing can become more expensive and investors may demand stronger returns before buying riskier assets. Higher yields can also change where investors put their money. When government bonds offer higher returns, some investors may become less willing to take additional risk in stocks. The direction of Treasury yields remains one of the most important factors investors are watching. The rise is part of a wider selloff in Treasury bonds as investors worry about inflation, oil prices and heavy US government borrowing. The rise came after Brent crude oil prices jumped, adding to concerns about inflation. Higher economic growth, rising energy prices, inflation concerns and increased government borrowing are all putting pressure on long-term bonds.
Because trade, technology and critical minerals remain important issues for both countries, president Donald Trump’s planned meeting with Chinese President Xi Jinping is a major event for investors. The 2007 comparison is therefore a historical warning rather than evidence that a similar crash is underway. The market is therefore balancing two opposing forces: continued optimism around AI and economic growth versus inflation, oil prices and higher interest rates. Because they are locking their money away for decades, investors want higher returns.
Diller said the parties could not bring together the right combination of factors needed to complete the deal.
Earlier reporting noted: Investors are asking for more money in return for lending to the US government for a very long period. The yield edged lower on Thursday but remained at historically high levels. Individual company results also moved stocks on Thursday. That historical comparison is one reason investors are paying attention to today’s Treasury yield levels. But today’s high yields do not by themselves mean another financial crisis is coming.
The jump in the 10-year yield came as investors assessed signs of stronger economic activity and persistent inflation. Brent crude futures traded above $105 a barrel on Thursday after recently moving above the $100 level. People Incorporated had offered $48.30 per MGM share in cash in June. The proposed transaction was valued at about $18 billion, including debt. MGM shares were trading around $34 on Thursday after the withdrawal. Diller said People Incorporated still owns 66.8 million MGM shares, representing about 27% of the company. The 10-year Treasury yield reaching levels not seen since 2007 has made investors more cautious, while rising oil prices and the possibility of another Fed hike are adding to the pressure.
The company reported improving revenue trends at its Las Vegas Strip resorts and expressed optimism about resilient travel bookings despite weaker consumer sentiment. Shares fell after the restaurant company reported first-quarter results that missed expectations. A S&P economic barometer showed strong business growth, adding to concerns that inflation could remain high. Higher oil prices are adding another inflation risk. This has increased investor concerns that the Federal Reserve may need to keep interest rates higher for longer. His comments added to expectations that the Fed could continue tightening monetary policy, as noted by Yahoo Finance. Darden Restaurants was another stock under pressure. Higher interest rates can reduce the value investors place on those future profits. For consumers, higher rates can also mean more expensive borrowing. Mortgage rates, credit costs and other loans can remain under pressure when longer-term Treasury yields rise. In short, Thursday’s stock decline is less about one single company and more about the changing interest-rate environment.
Because energy costs affect businesses, transportation and consumers, expensive oil can make inflation harder to control. Because many high-growth companies are valued based on future earnings, for technology stocks, the pressure can be especially important.
New York Fed President John Williams said another interest-rate hike by the end of the year would be “reasonable.
MGM’s underlying business had shown some positive signs before the takeover offer was withdrawn.
The combination of high Treasury yields, inflation worries and possible further Fed hikes is creating pressure on stocks. Higher bond yields can make safer government debt more attractive compared with riskier assets such as stocks.
Yahoo Finance reported that Muse, which debuted on September 8, became the top app on both Apple’s App Store and Google’s Play Store. Treasury Secretary Scott Bessent said the US and China agreed to extend their trade truce for another two months, through January 10. Weekly jobless claims dropped by 1,000 to 197,000. Economists had expected 201,000 claims, according to Reuters. Continuing jobless claims stood at 1.72 million for the week ending September 12.
The company also announced plans to make money from its Muse AI agent. The situation is particularly important for growth and technology stocks. Higher interest rates can reduce the present value investors place on companies whose expected profits are further in the future, which can put pressure on technology-heavy indexes such as the Nasdaq. Still, investors are also watching the artificial intelligence boom and major technology companies. Recent optimism around AI has helped support stocks even as concerns about interest rates and inflation have increased. Meta’s Muse AI agent has quickly gained popularity. Meta is expanding Muse’s shopping and payment capabilities. Muse is also being expanded into travel and grocery shopping. Meta is adding Expedia connectivity for travel and Instacart for grocery purchases. Meta is also rolling out computer-control capabilities for Mac computers. Artificial intelligence competition, the Iran war and critical minerals are expected to remain among the key topics in discussions. Several major US technology CEOs are expected to join Trump and Xi for a dinner. That makes the meeting particularly relevant for investors watching the future of US-China technology and trade relations.
Meta CEO Mark Zuckerberg said the company expects to eventually earn money by taking a small fee from transactions made through Muse. Zuckerberg said Meta plans to keep Muse free for a large number of tokens while building a transaction-based business model. Meta chief AI officer Alexandr Wang said the company has added PayPal support and integrations with retailers including Walmart, Best Buy, Gap, Sephora, Wayfair and American Eagle. Wang said the AI agent will be able to take control of a Mac and perform tasks on behalf of users.
Meta unveiled new cameraless virtual-reality glasses at its Connect event on Wednesday.
