U.S. stocks struggled for direction on Thursday during a volatile Wall Street session dominated by rising oil prices, elevated Treasury yields and increasingly hawkish Federal Reserve expectations.
Major indexes initially moved sharply lower before recovering most of their losses following reports that the United States and Iran were discussing a potential phased agreement aimed at ending their conflict.
U.S. Stocks Recover From Early Losses
At 14:28 ET, the S&P 500 was virtually unchanged at 7,708.42, after falling as much as 0.6% earlier in the session.
The technology-heavy Nasdaq Composite was also little changed at 26,925.37 after previously dropping as much as 0.9%.
Meanwhile, the Dow Jones Industrial Average declined 0.2% to 51,402.89.
Investors were attempting to balance stronger economic data against the possibility of higher interest rates and continued geopolitical uncertainty.
Treasury Yields Remain Near Multi-Year Highs
The U.S. bond market also experienced volatile trading following a sharp selloff.
The benchmark 10-year Treasury yield climbed to around 5.15%, keeping it close to levels not seen since July 2007.
Longer-term Treasury yields remained elevated after the 30-year yield touched its highest level in more than two decades.
BakerAvenue Wealth Management strategist King Lip described the combination of higher oil prices, rising bond yields and a more hawkish Federal Reserve as three simultaneous macroeconomic pressures facing equities.
The speed of the rise in Treasury yields may be particularly important for stock valuations.
Markets can eventually adjust to higher yields, but rapidly changing borrowing costs make it harder for investors to determine appropriate valuations for equities.
U.S.-Iran Deal Report Helps Wall Street Recover
Stocks recovered much of their earlier decline after reports emerged that U.S. and Iranian negotiators were considering a phased path toward ending their conflict.
The discussions reportedly include the possible reopening of the Strait of Hormuz alongside the lifting of the U.S. economic blockade against Iran.
Hopes for such an agreement helped stocks and bonds rebound from their session lows, although oil prices remained elevated.
The Strait of Hormuz remains critical to global energy markets because a significant share of international oil supplies normally passes through the waterway.
Any progress toward restoring normal shipping conditions could therefore ease some of the pressure currently affecting energy prices and inflation expectations.
Higher Oil Prices Pressure Market Sentiment
Oil prices remained one of the biggest concerns for investors.
Brent crude moved back above $100 per barrel as uncertainty continued over whether diplomatic negotiations could bring a rapid end to the conflict.
Higher energy prices can increase inflation by raising transportation and production costs across the economy.
That creates an additional challenge for the Federal Reserve and can reduce expectations for easier monetary policy.
Federal Reserve Rate Hike Bets Increase
Expectations for further Federal Reserve tightening have risen sharply.
According to CME FedWatch figures cited in the original report, traders were pricing in approximately a 77.5% probability of an October rate hike, compared with 55.4% one week earlier.
The probability of another increase in December had also climbed above 58%, up from 41.7%.
These expectations have contributed to higher Treasury yields and placed additional pressure on growth-sensitive areas of the stock market.
Technology Stocks Face Higher-Rate Pressure
Technology shares were particularly sensitive to the increase in bond yields.
Companies with high valuations are often more vulnerable to rising long-term interest rates because higher discount rates reduce the present value of expected future earnings.
Artificial intelligence semiconductor stocks also experienced pressure, with companies such as Nvidia and Advanced Micro Devices facing early weakness during the session.
However, broader technology losses eased as the market recovered from its intraday lows.
Strong U.S. Economy Could Still Support Stocks
Despite concerns surrounding interest rates, some analysts believe the latest economic data provides evidence that the U.S. economy remains resilient.
Recent business activity figures showed continued economic momentum, even as financial conditions remain relatively restrictive.
BCA Research argued that the strength of the economy continues to favor stocks over bonds.
UBS Global Wealth Management Chief Investment Officer Mark Haefele also pointed to strong corporate earnings as a potential source of support for equities over the next six to 12 months, despite elevated interest rates and geopolitical uncertainty.
Trump-Xi Summit Takes Center Stage
Investors were also closely monitoring the meeting between U.S. President Donald Trump and Chinese President Xi Jinping in Washington.
Trump welcomed Xi to the White House on Thursday for talks expected to cover trade, artificial intelligence, security and other major issues affecting U.S.-China relations.
The meeting comes as both sides attempt to maintain stability in their economic relationship while continuing to compete across technology, trade and strategic industries.
U.S. and China Extend Trade Truce
Washington and Beijing agreed to extend their existing trade truce by another two months.
U.S. Treasury Secretary Scott Bessent said the agreement, which had been scheduled to expire on November 10, would now continue until January 10.
The extension gives both countries additional time to negotiate a potentially broader trade agreement.
However, Bessent indicated that it remained uncertain whether a larger agreement could be finalized before the new deadline.
Artificial Intelligence Emerges as Key U.S.-China Issue
AI is another major focus of the U.S.-China relationship.
Both countries are competing for leadership in advanced artificial intelligence technologies while also discussing potential cooperation on safety risks.
U.S. and Chinese officials have previously agreed to continue talks on AI safety, including communication mechanisms for serious AI-related incidents.
Technology policy could therefore remain an important market theme as investors monitor the outcome of the Trump-Xi summit.
Wall Street Faces Multiple Macro Risks
U.S. stocks are currently balancing several competing forces.
Strong economic activity and corporate earnings remain supportive for equities. However, higher Treasury yields, elevated oil prices and expectations for additional Federal Reserve rate hikes are creating pressure on valuations.
At the same time, developments in U.S.-Iran negotiations and U.S.-China relations could quickly shift market sentiment.
For now, Wall Street investors are likely to remain focused on Treasury yields, oil prices, Federal Reserve policy and geopolitical developments for clues about the next major move in U.S. stocks.
