U.S. Stocks Fall as 10-Year Yield Tops 5.10%

The move in bonds mattered as much as the equity drop. September’s flash U.S. composite PMI rose to 58.4 from 56.0, reinforcing the view that growth remains firm even as price pressures persist, while Fed Governor Michael Barr said further rate hikes are likely needed. Traders were pricing a 66% chance of an October hike, up from 74% intraday, keeping pressure on rate-sensitive parts of the market.

Small-cap stocks were hit hardest because their business models tend to be more dependent on domestic growth and higher borrowing costs. The Russell 2000’s 1.77% drop came alongside weakness in the Nasdaq 100, which fell 0.85%, showing that both rate-sensitive growth stocks and economically exposed smaller companies struggled to absorb the jump in yields.

Some technology shares still outperformed the broader tape. Palo Alto Networks gained 5.0%, CrowdStrike rose 4.97% and Palantir advanced 3.71%, suggesting investors were still willing to buy select software and cybersecurity names even as the broader Nasdaq fell. But those gains were not enough to offset selling across the index.

The macro backdrop also stayed inflationary. U.S. crude rose 2.19% to $92.50 a barrel, adding to concern that energy costs could feed through to consumer prices and keep the Fed under pressure to stay restrictive longer.

The market setup leaves investors focused on whether higher yields extend into the next round of inflation and growth data, and whether Fed officials continue to lean toward tighter policy ahead of the October meeting.