U.S. stocks experienced a mixed day of trading on Thursday, as renewed optimism regarding a potential deal to reopen the Strait of Hormuz helped counteract concerns related to inflation and increasing bond yields. Despite these economic pressures, the market saw notable movements in technology and international trade negotiations.
Market Performance and Economic Drivers
Major indices were subdued as investors digested conflicting signals. The Dow Jones Industrial Average (^DJI) declined by 0.3%, while the S&P 500 (^GSPC) closed slightly below its opening level. The technology-heavy Nasdaq Composite (^IXIC) also managed to trim losses, ending the session in positive territory.
Concerns over sticky inflation and a recent sell-off in bonds kept market sentiment cautious. On Wednesday, the benchmark 10-year Treasury yield (^TNX) reached its highest level since 2007, and the 30-year yield set a record high dating back to 2004. These rising yields created significant pressure on borrowing costs, causing the average 30-year mortgage rate to jump 11 basis points to 7.37%, marking the highest level since May 2024.
Geopolitical Developments and Trade Talks
A primary catalyst for market buoyancy was the news that U.S. and Iranian negotiators were reportedly developing a plan to restore shipping traffic through the Strait of Hormuz. The Strait is recognized as a critical chokepoint in the Middle East, and any resolution has implications for global oil prices.
In separate diplomatic news, Treasury Secretary Scott Bessent announced that the U.S. and China agreed to extend their trade truce, originally known as the “Busan Agreement.” The agreement, which was set to expire on November 10, will now continue until January 10. This extension was announced following a meeting between the two nations.
The US-China summit got underway in earnest on Thursday with signals from both sides that importers may be able to count on some stability in the trading relationship between the two nations for the coming few months.
Treasury Secretary Scott Bessent announced Wednesday that the US and China would extend their current trade truce — set to expire in November — by two months as he set up a new early 2027 deadline for continuing trade talks.
The Chinese didn’t immediately confirm that extension, but Chinese President Xi Jinping opened the summit with notably conciliatory remarks on trade. He offered his support, according to a translation, for “a constructive China-US relationship of strategic stability” as well as increased flights “to facilitate two-way travel and trade.”
Corporate and Sector Analysis
The technology sector saw distinct performances. Meta (META) shares rose by 4% after CEO Mark Zuckerberg presented his strategy for monetizing the company’s popular Muse AI agent. Conversely, Oracle (ORCL) stock declined after the company issued a force majeure notice, limiting its financial exposure related to a New Mexico data center project.
In other corporate news, Darden Restaurants (DRI) stock fell following the release of first-quarter earnings that failed to meet market expectations. Meanwhile, Costco Wholesale Corporation (COST) was scheduled to release its fiscal fourth quarter results after the market close.
Commenting on the market’s elevated bond yields, Rick Rieder, chief investment officer of global fixed income at BlackRock, stated that the situation should be viewed as “Not a crisis but an eye-opener.”
The rip in the 10-year US Treasury yield (^TNX) is triggering a brutal memory for many investors. They aren’t necessarily admitting it, as seen in the stock market’s surprising resilience.
The last time the US 10-year bond yield was this high was July 2007. Three months later, the global financial crisis started as the housing meltdown shocked the world. The Nasdaq Composite (^IXIC) plunged 56% over the next 16 months, the team at Bull Theory pointed out.
Now we aren’t currently living in a global financial meltdown by any means. And to suggest we are on the cusp of a stock market crash simply because yields are back to 2007 levels would be reckless.
But it does bear watching, and perhaps warrants reining in one’s risk appetite for stocks.
