Wall Street sees sectoral divergence amid the Fed’s first rate hike since 2023, with long‑term Treasury yields climbing to multi‑year highs
Wall Street ended the third quarter with mixed results: higher energy prices and rising bond yields pulled the Dow Jones Industrial Average down 2.7%, while steady demand for technology lifted the S&P 500 by 2% and the Nasdaq Composite by 2.5%.
The market’s volatile first half gave way to a split performance over the quarter.
The first quarter experienced sell‑offs driven by Middle East tensions and shipping disruptions, whereas the second quarter saw double‑digit gains after a tentative cease‑fire in the region and several high‑profile IPOs.
When ship traffic in the Strait of Hormuz was halted amid escalating U.S., Israeli, and Iranian tensions, oil prices jumped due to supply constraints, inflation concerns.
In the third quarter, investors searched for direction amid geopolitical risks, climbing energy prices, and uncertainty over Federal Reserve policy.
Oil‑price momentum accelerated in the first month of Q3, set against a backdrop of a Middle East cease‑fire and ongoing supply worries.
Higher Brent and West Texas Intermediate (WTI) prices revived fears of persistent inflation as production and logistics costs rose.
Inflation data proved more robust than expected, reinforcing expectations that the Fed would keep rates elevated for an extended period.
AI and technology stocks fell in July due to profit‑taking and a shift toward energy firms, nudging the Dow up 0.3% while the S&P 500 and Nasdaq slipped 0.1% and 3.2%, respectively.
After the July sector rotation from tech to energy, equities broadly recovered in August despite bond‑market pressure, as strong macro data and growing federal borrowing pushed long‑term Treasury yields to multi‑year highs.
The Treasury Department’s move to at least double its long‑term bond buyback program added liquidity, yet it was insufficient to fully relieve bond‑market strain.
U.S. public debt topped $40 trillion for the first time on Aug. 18, and elevated bond yields increased the debt’s interest burden.
Fed Chair Kevin Warsh, speaking at Jackson Hole, stressed price stability and warned that the fight against inflation was not over, indicating that further rate hikes remained possible.
In August, the Dow closed up 1.3%, the S&P 500 rose 2.6%, and the Nasdaq advanced 3.9%.
In September, the final month of Q3, the Federal Open Market Committee raised the policy rate by 25 basis points to a 3.75‑4% range, marking the Fed’s first hike since 2023.
The Fed also lifted its year‑end federal‑funds‑rate forecast from 3.8% to 4.1%, pointing to another increase later this year.
Ongoing lack of progress toward Middle East peace and energy‑supply worries pushed Brent futures near $110 per barrel in mid‑September.
Diesel prices peaked at $6.53 per gallon on Sept. 22, according to the American Automobile Association.
Higher energy costs stoked inflation concerns, and bonds faced heavy selling pressure.
The U.S. 10‑year Treasury yield reached its highest level since 2007, while the 30‑year yield hit a peak not seen since 2002.
The average rate on 30‑year U.S. mortgages rose to 7.3% last week, the highest since November 2023.
During that period, the Dow fell 4.3%, the S&P 500 slipped 0.5%, and the Nasdaq gained 1.9%.
From July through September, the Dow declined 2.7%, the S&P 500 rose 2%, and the Nasdaq increased 2.5%.
The Dow’s quarterly drop highlighted its sensitivity to rising input costs and tighter credit, while continued institutional demand for chipmakers, cloud infrastructure, and AI supported the broader market.
All three major indices stayed in positive territory for the first nine months of the year despite a weak third quarter, with the Dow up 5.9%, the S&P 500 up 11.8%, and the Nasdaq leading at a 15.6% gain.
