US stocks fall as Treasury yields hit 2007 high on inflation fears

US stock markets declined sharply on Wednesday as the 10-year Treasury yield surged above 5.11%, reaching its highest level since 2007. The Dow Jones Industrial Average dropped 0.7%, the S&P 500 fell 0.8%, and the Nasdaq Composite declined 1.1% from recent all-time highs. The sell-off was driven by a confluence of factors: oil prices rose as Brent crude traded near $98 per barrel and WTI crude hit $92, while economic data showed US business activity expanding at its fastest pace since 2021—stronger than economists expected. These developments intensified inflation concerns and raised expectations for additional Federal Reserve rate hikes. Fed Governor Michael Barr stated in a Wednesday speech that "further policy adjustments" would be needed to bring inflation down.

The bond market pressure rippled into housing markets, with 30-year mortgage rates climbing 9 basis points to 7.26%, the highest level in close to two years, according to Mortgage News Daily. The combination of higher yields and sticky inflation signals a challenging environment for borrowers and investors alike. Nearly 1 in 10 mortgage applicants opted for adjustable-rate mortgages last week as buyers sought alternatives to lock in lower rates.

Geopolitical developments added to market uncertainty. President Trump stated that US and Iranian officials held talks lasting several hours at the UN Assembly in New York, rekindling hopes of a diplomatic thaw between the two nations—a factor that contributed to oil price movements. Separately, Chinese President Xi Jinping arrived in Washington for his first visit in 11 years, with President Trump greeting him at Joint Base Andrews. However, Xi arrived with a significantly smaller business delegation than initially expected; Chinese state media confirmed a reduced entourage of family members and political aides. The South China Morning Post reported that a lack of progress on deals had led to the paring back of the Chinese delegation.

World leaders are expected to discuss trade, regional conflicts, rare earths, and artificial intelligence. A dinner on Thursday will include Silicon Valley executives from Nvidia, OpenAI, and Google alongside Presidents Trump and Xi. Despite the high-profile nature of the summit, experts are not expecting major policy breakthroughs from the meeting.