Key facts
- US stocks fell Tuesday as the 10-year Treasury yield hit its highest level since 2007.
- The 10-year Treasury yield reached 5.04% amid concerns over inflation and US fiscal health.
- Rising oil prices are contributing to inflation fears.
- Wells Fargo warned of a potential 5%-10% stock drawdown this year.
- Bank of America lowered its S&P 500 year-end target to 7,400.
US stocks fell on Tuesday as Treasury yields continued to climb, with the 10-year Treasury yield touching its highest level since 2007 and nearing a key psychological threshold of 5%. This surge in borrowing costs, which influences rates for consumers and businesses, ignited another round of selling on Wall Street and coincided with fresh warnings from analysts about a potential market pullback.
The 10-year Treasury yield rose as high as 5.04% before settling around 4.99% mid-day Tuesday. The renewed rise in oil prices, with Brent crude spiking to nearly $110 a barrel and US crude trading above $106, is fueling fears about inflation. Demand for government bonds has also been weak amid concerns about the US's fiscal health, further pushing yields higher.
US stocks tumbled with the latest yield spike; the Dow Jones Industrial Average shed more than 500 points by midday. Around 1:45 p.m. ET, the S&P 500 was down 0.5% at 7,582.40, the Dow Jones Industrial Average was down 0.83% at 51,986.98, and the Nasdaq 100 was down 0.63% at 28,943.30.
Market strategists are increasingly warning of further weakness in stocks. Wells Fargo flagged the risk of a 5% to 10% drawdown in stocks this year before markets resume their rally, trimming its year-end price target for the S&P 500 to 7,700 from 7,950. The bank cited investors being too exposed to stocks and the recent spike in bond yields as headwinds.
Morgan Stanley also flagged the risks of a near-term stock correction due to an 'unexpected inflation shock,' such as rising bond yields from surging oil prices. Bank of America revised its year-end target for the S&P 500 to 7,400, implying 2% downside from current levels, citing caution on inflation, the Federal Reserve, earnings quality, and credit risks. Strategists at the bank noted that stocks tend to see their worst performance of the year in the late summer to early fall period and that about half of their 'bear market signposts' have been triggered.