High oil prices hurt Wall Street, ASX set to fall
Stan Choe
The US stock market fell from records on Friday, joining stock declines around the world after higher oil prices sent a chill through the bond market. Stocks caught up in the enthusiasm brought by artificial intelligence technology led the decline.
The S&P 500 fell 1.2 percent from its all-time high set the day before. The Dow Jones fell 537 points, or 1.1 percent, and the Nasdaq composite fell 1.5 percent from its record. The Australian share market is poised for a decline, with futures pointing to a 38-point, or 0.4 per cent, decline at the open. The Australian dollar was trading at 71.58¢ at 5.12am AEST.
Technology stocks have made a sharp turnaround from their meteoric rise for most of the year, sending markets around the world to records but also sparking criticism that they have gone too far.
Nvidia, which is quickly becoming the face of the artificial intelligence revolution, had the heaviest weight in the S&P 500, falling 4.4 percent. It had gained over 26 percent throughout the year so far.
Micron Technology was another of the heaviest weights in the market following a 6.6 percent decline. Still, it’s up nearly 154 percent for the year so far.
“In our view, markets appear to have entered overbought territory,” said Brian Jacobsen, chief economic strategist at Annex Wealth Management. He said the strong corporate profits that have propelled U.S. stocks to records and the resilient U.S. economy remain intact, but “the road is unlikely to be smooth. Periods like these call for discipline rather than hope.”
Meanwhile, rising oil prices on the back of inflation already worsening more than economists feared are adding to the pressure. The war with Iran continues and the Strait of Hormuz remains closed to oil tankers, preventing them from delivering crude oil to customers around the world and driving up oil prices.
The price of a barrel of Brent crude, the international standard, rose 3.3 percent to $109.26 a barrel, well above its pre-war level of roughly $70 a barrel.
Many large U.S. companies say their customers can continue spending on their products and services even though they have to pay higher prices for gasoline. But U.S. households also tell surveys they are discouraged about the economy and the pressures on them from war and tariffs.
Concerns were most evident in the bond market on Friday, when Treasury yields climbed. The yield on the 10-year Treasury note rose to 4.59 percent from 4.47 percent on Thursday. This is a significant move for the bond market and is well above the pre-war level of 3.97 percent.
The yield on the 30-year Treasury note reached 5.13 percent, back to where it was in 2007, before the financial crisis sent yields crashing to zero the next year.
Higher yields could make mortgages and other types of loans to U.S. households and businesses more expensive, slowing the economy. They also tend to drive down stock prices and any other type of investment.
Shares of smaller companies had some of the sharpest declines on Friday. Many need to borrow to grow, meaning higher borrowing costs could hurt them more than their larger rivals. The Russell 2000 index of smallest U.S. stocks fell 2.4 percent, double the S&P 500’s loss.
In total, the S&P 500 fell 92.74 points to 7,408.50 points. The Dow Jones Industrial Average fell 537.29 to 49,526.17, and the Nasdaq composite index fell 410.08 to 26,225.14.
Yields have been rising since the battle against concerns about how high inflation and short-term interest rates could tie the Fed’s hands. According to data from CME Group, investors have not only abandoned almost all expectations that the Fed will continue to cut interest rates this year, but they are also developing some bets that it may even raise interest rates in 2026.
Several better-than-expected reports on the U.S. economy also helped lift yields. One said U.S. industrial production rose more last month than economists expected, while another said production in New York state rose faster.
Indices on stock markets abroad fell by more than 1.5 percent in most of Europe and Asia.
South Korea’s Kospi made one of the biggest moves, falling 6.1 percent. Records were broken this year due to the influence of AI beneficiaries such as SK Hynix. However, it quickly reversed momentum after briefly hitting the 8,000 level for the first time on Friday.
Some on Wall Street are warning of a possible break in momentum for tech stocks in general and AI winners in particular.
“If nothing else, this should be a ‘bow shot’ to show how volatility works in both directions,” according to BTIG chief market technician Jonathan Krinsky.
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