Stocks Fall in Run-Up to Fed as Yields Stay High: Markets Wrap

(Bloomberg) — Wall Street traders refrained from making riskier bets in the countdown to the Federal Reserve decision, with stocks falling as elevated oil prices drove bond yields to multi-year highs.

Almost 350 firms in the S&P 500 retreated. Benchmark 10-year yields hit 5%, the highest level in nearly two decades. Longer-dated Treasuries extended declines after a weak $13 billion sale of 20-year bonds. Brent crude settled around $109, fueling worries about inflation. Bitcoin tumbled as the US Senate blocked a landmark crypto market structure bill.

Three major central bank meetings — starting with the Fed on Wednesday and followed on successive days by peers in the UK and Japan — may recast the monetary policy landscape for the rest of 2026.

The US decision will be most closely watched in the wake of last week’s higher-than-expected core inflation data, which has stoked bets that Fed Chair Kevin Warsh and his colleagues will boost rates for the first time in three years.

With traders pricing a high probability of a September Fed increase, the focus has changed from whether officials will tighten to what the start of a hiking cycle means for markets, noted Dennis DeBusschere at 22V Research.

“The debate has shifted from ‘if’ to ‘how much’ tightening this cycle will require to restore price stability,” said Seema Shah at Principal Asset Management. “A one-and-done hiking approach is unlikely.”

The Rationale for Raising Rates Is Crystal Clear: Bill Dudley

“The combination of higher interest rates and elevated oil prices is like asking equities to run a marathon with ankle weights strapped on,” said Darrell Cronk at Wells Fargo Investment Institute. “Higher rates increase the discount rate investors apply to future earnings, while higher energy costs drain purchasing power from consumers and pressure profit margins.”

The result is a market that must “work harder” to generate earnings growth just as investors become less willing to pay premium valuations, he added.

“If the Fed follows the futures market and hikes rates, our sense is that stocks are likely to see downward pressure over the near-term,” said Chris Senyek at Wolfe Research. “However, we’ve found that over a longer time horizon — six to 12 months after the first rate hike — stocks typically recover and push into positive territory.”

Despite any potential equity weakness, Senyek doesn’t believe this will mark a “top” for the market. Rather, his sense is the technology sector can continue to “work,” given tailwinds from artificial-intelligence megatrends, strong earnings and a resilient economy.

At Edward Jones, Brock Weimer says he doesn’t expect a modest additional increase in rates to derail the broader economic expansion or the equity bull market.

“Although core inflation remains uncomfortably high and renewed energy-price pressures could slow further progress, inflation has moderated considerably from its 2022 peak,” he said. “Against this backdrop, we expect any renewed Fed tightening to be limited in scope and duration.”

Corporate Highlights:

Nvidia Corp. Chief Executive Officer Jensen Huang dismissed the need for new AI security regulations, arguing that market forces will help companies safely innovate. OpenAI is working on steps to address AI safety issues with its top competitors Anthropic PBC and Google DeepMind. Meta Platforms Inc. plans to begin deploying a new in-house AI chip in data centers during the first half of next year. JPMorgan Chase & Co. forecast third-quarter gains for trading revenue and investment-banking fees, a stark contrast from Bank of America Corp.’s warning earlier this week. Wells Fargo & Co. Chief Financial Officer Michael Santomassimo said that the lender’s net interest margin is expected to be better than initially expected. What Bloomberg strategists say…

“Rising yields compress equity valuations while higher energy costs squeeze margins.”

—Michael Ball, Macro Strategist, Markets Live. For the full analysis, click here.

Some of the main moves in markets:

Stocks

The S&P 500 fell 0.45% as of 4 p.m. New York time The Nasdaq 100 fell 0.6% The Dow Jones Industrial Average fell 0.6% The MSCI World Index fell 0.5% Currencies

The Bloomberg Dollar Spot Index rose 0.2% The euro was little changed at $1.1540 The British pound fell 0.2% to $1.3474 The Japanese yen fell 0.5% to 155.13 per dollar Cryptocurrencies

Bitcoin fell 3.8% to $76,082.51 Ether fell 6.2% to $2,411.16 Bonds

The yield on 10-year Treasuries advanced one basis point to 5.00% Germany’s 10-year yield advanced two basis points to 3.54% Britain’s 10-year yield advanced two basis points to 5.39% Commodities

West Texas Intermediate crude rose 4.6% to $106.05 a barrel Spot gold was little changed ©2026 Bloomberg L.P.