US Stocks Slip as Surging Treasury Yields Overshadow Encouraging Inflation Data

New York, Sept. 30 — U.S. stocks closed lower on Wednesday after an early rally faded, as rising long-term Treasury yields pressured equity valuations despite a closely watched inflation report that came in softer than expected.

The Dow Jones Industrial Average fell 443 points, or 0.9%, to close at 50,906 . The S&P 500 slipped 19.30 points, or 0.3%, to 7,651.54 . The Nasdaq Composite, which had surged more than 1% in morning trading, gave back most of its gains but managed to edge slightly higher.

Inflation Cools but Remains Elevated

The Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) price index—the Federal Reserve’s preferred inflation gauge—rose 3.4% year-over-year in August, down from 3.7% in July and below economists’ expectations . On a monthly basis, headline PCE rose 0.3%, while core PCE, which excludes volatile food and energy prices, increased just 0.2% .

Core PCE held steady at 3.0% annually, also coming in below projections . The softer reading initially lifted investor sentiment, fueling hopes that the Fed might temper its aggressive tightening path.

However, analysts cautioned that one month of improvement does little to alter the broader inflation picture. “While today’s inflation data was slightly better than expected, the strong employment and GDP figures suggest this report is unlikely to dissuade the market from expecting another rate hike before year-end,” said Adam Hetts, global multi-asset head at Janus Henderson Investors.

Economic Data Shows Resilience

The inflation report was accompanied by a raft of data underscoring the U.S. economy’s surprising resilience. The Commerce Department’s final estimate for second-quarter GDP was revised up to 2.2% annualized growth, significantly higher than the previous estimate of 1.5% . Consumer spending, which accounts for roughly two-thirds of economic activity, surged 0.9% in August, the fastest pace in nearly two years .

“Today’s U.S. GDP data shows that consumers and businesses kept spending and investing through the second quarter, despite higher inflation and interest rate uncertainty,” said Atsi Sheth, chief credit officer at Moody’s Ratings .

Bond Yields Surge to Multi-Year Highs

The most significant headwind for equities came from the bond market. The 30-year Treasury yield climbed to 5.62%, its highest level since June 2002, while the 10-year yield reached 5.293%, the highest since June 2007 . The benchmark 10-year yield touched 5.304% intraday, marking a fresh 24-year high .

The global bond selloff has persisted for six consecutive sessions, driven by expectations that central banks will maintain restrictive policies to combat inflation. The 2-year Treasury yield stood at 4.935%, while the 5-year yield was 5.072% .

Sector Performance Mixed

Within the S&P 500, utilities gained 1.14%, while energy declined 0.89% . Technology stocks showed relative strength, with Amazon and Apple each rising approximately 2% and Alphabet gaining 3%. Software companies also outperformed, with Palo Alto Networks up 3.7% and Microsoft up 1.9%.

On the downside, Moderna dropped more than 8% after Citi downgraded the stock from “neutral” to “sell.” Robinhood shares declined following the release of its AI-driven strategy tool.

Fed Signals Caution

The Federal Reserve raised interest rates by a quarter-point to a target range of 3.75% to 4% at its September meeting, marking its first hike in three years . The FOMC statement noted that “inflation remains elevated” and that “domestic spending has been resilient” .

Several Fed officials have recently indicated that further tightening may be warranted. New York Fed President John Williams suggested another rate hike this year remains probable, though he noted it could occur “later this year,” which markets interpreted as reducing the likelihood of an October move .

Consumer Confidence Deteriorates

Despite the strong economic data, American households are growing increasingly pessimistic. The Conference Board reported that consumer confidence fell this month to its lowest level in 12 years, with assessments of both current and future economic conditions deteriorating and more respondents expecting a recession within the next 12 months .

Investors now turn their attention to Friday’s September nonfarm payrolls report, which will provide crucial insight into the labor market’s health and inform the Fed’s policy trajectory ahead of its October meeting.