U.S. stocks decline amid rising oil prices and bond yields

Article by: Tide Research

U.S. stocks pulled back from highs, with pressure primarily coming from rising oil prices, higher U.S. Treasury yields, and mixed earnings reports. The VIX declined, indicating markets have not entered a panic mode, but capital is beginning to reassess valuations. Energy led gains, while storage and software sectors plunged; the AI hardware theme held its structure for now. Ahead of Friday’s non-farm payrolls, the Nasdaq, Philadelphia Semiconductor Index, and 10-year Treasury yield remain key indicators for whether the recent high-range consolidation can continue.

U.S. stocks closed lower on Thursday. The Dow Jones fell 0.85% to 53,885.10; the S&P 500 dropped 0.18% to 7,709.96; the Nasdaq declined 0.06% to 26,348.35; and the Russell 2000 slid 0.58% to 3,001.55. The Dow ended a five-day winning streak, while the S&P 500 and Nasdaq fell for a second consecutive day.

Volatility did not surge in tandem. The VIX closed at 15.15, down 4.17%. Market pressure is concentrated on oil prices and interest rates. The 10-year U.S. Treasury yield rose to approximately 4.68%, while the 2-year yield increased to around 4.25%, tightening the pricing environment for high-valuation assets.

Among the S&P 11 sectors, energy rose 1.52% to lead gains, followed by communication services up 0.29% and healthcare up 0.16%; materials fell 0.89%, real estate fell 0.89%, industrials fell 0.84%, utilities fell 0.62%, consumer discretionary fell 0.46%, financials fell 0.34%, technology fell 0.30%, and consumer staples fell 0.23%. The overall index decline was modest, but sector rotation has accelerated.

Middle East risks are heating up again. Reports regarding Iran’s potential restrictions on passage through the Strait of Hormuz have fueled market concerns, prompting a sharp rebound in crude oil prices. WTI September crude oil futures rose 2.75% to $77.29 per barrel; Brent October crude oil futures climbed 3.83% to $82.49 per barrel. Gold surged over 1% during trading but closed lower, with COMEX August gold futures down 0.09% at $4,242 per ounce.

The rebound in oil prices affects more than just energy stocks. Previously, the upward movement in U.S. equities was partly driven by falling oil prices, easing inflationary pressures, and a cooling of interest rate hike expectations. Now, with oil prices rising again, yields are rebounding, weakening the valuation support for growth stocks.

Digital assets also remain weak. According to CoinGecko data, Bitcoin is trading around $64,200, down approximately 0.6% over the past 24 hours; Ethereum is fluctuating slightly around $1,900. Crypto prices have not shown independent movement and continue to oscillate in line with macro risk sentiment.

Storage stocks became the main drag on U.S. equities. Western Digital fell 13%, and SanDisk dropped 6.8%. Both companies had previously seen significant gains, but their earnings guidance failed to raise expectations further, prompting investors to take profits.

Software stocks fell more sharply. AppLovin dropped 19.7% after reporting quarterly revenue below expectations, and Datadog fell 19% due to a slowdown in expected revenue growth for the third quarter. The market still favors growth stocks, but once growth slows, valuations are first compressed.

Capital continues to flow toward stocks with solid fundamentals and clear guidance. SiTime rose over 20% after beating earnings expectations, SpaceX increased 6.1% following the expiration of the early investors' lock-up period, Microsoft gained 2.5%, and AMD rose 1.5%; BillionToOne fell over 39%. In the latter half of earnings season, beating earnings expectations can only stabilize expectations—only continued upward revisions to guidance are likely to expand valuation multiples.

Alphabet plans to raise up to $25 billion through a U.S. investment-grade bond offering, with reportedly more than fourfold subscription demand. In the short term, markets remain willing to finance large tech companies; in the medium term, the cost of financing and return timelines for AI investments are beginning to factor into valuation models.

Over the past period, AI trading primarily revolved around demand for computing power, cloud services, models, and applications. Now, the market is beginning to evaluate investment cycles, speed of returns, and cost of debt. While Microsoft, Alphabet, and Meta still have financing capabilities, cash flow quality is being given higher priority, and the weight of growth narratives alone is decreasing.

The model price war is far from over. After DeepSeek raised its API prices, Meta quickly responded with a new model at a lower price; ByteDance has also stated that it will continue developing large models in-house. As inference costs continue to decline, profit distribution among cloud providers, chip manufacturers, and application-layer companies will still be reshaped.

Trump signed an executive order implementing minimum import prices and additional tariffs on imported polysilicon and its derivative products, imposing a 15% ad valorem tariff on related polysilicon ingots and their derivatives, set to take effect on December 4, 2026. Although the policy ostensibly targets polysilicon and solar energy, it fundamentally aims to rebuild America’s domestic semiconductor, photovoltaic, and upstream materials supply chains.

The Democratic Republic of the Congo has decided to completely ban the export of copper and cobalt concentrates, and will impose new taxes on mining by-products with economic value. Copper and cobalt are critical to power grids, data centers, new energy vehicles, and battery supply chains; policy changes in resource-producing countries can impact global cost curves. If disruptions in these raw materials continue, mining, energy, electrical equipment, and grid infrastructure sectors in the U.S. stock market are more likely to attract increased investor attention.

China's Cyberspace Administration has initiated a cybersecurity review of Palo Alto Networks' products sold in China, increasing uncertainty for U.S. cybersecurity firms in the Chinese market. For U.S. tech stocks, supply chain issues, market access, and geopolitical scrutiny remain sources of valuation discounts.

The most important data on Friday is the U.S. non-farm payrolls. The market expects around 88,000 new jobs added, with the unemployment rate holding steady at 4.2%. If employment and wage data come in stronger than expected, U.S. Treasury yields may continue to rise, putting pressure on high-valuation tech and small-cap stocks; if the data shows signs of cooling, the inflationary pressure from oil price rebounds could be partially offset.

The index trend has not been broken, but internal screening has accelerated. The simultaneous strength in energy, a rebound in interest rates, and a decline in the VIX indicate that capital has not exited the market—it is merely compressing valuation flexibility at elevated levels. The sharp declines following earnings reports in storage and software also show that ordinary upside surprises are no longer sufficient; capital now prioritizes strong guidance and sustained growth.

The key short-term factors remain the Nasdaq, the PHLX Semiconductor Index, and the 10-year U.S. Treasury yield. As long as the AI hardware theme continues to absorb momentum and yields don’t rise further, U.S. equities will likely remain range-bound at elevated levels. However, if oil prices, interest rates, and earnings disappoint simultaneously, the tolerance for chasing gains will continue to decline.