Ahead of the Fed rate decision: 5% US yields and rising oil prices weigh on stock markets

On the eve of the eagerly awaited interest rate decision by the U.S. Federal Reserve, financial markets are under noticeable pressure. The rise in yields on 10-year U.S. Treasuries to their highest level since 2007 is coinciding with a sharp increase in crude oil prices. For private investors who are invested in broad market indices such as the S&P 500, the Nasdaq or global ETFs, this combination means a double burden for company valuations and cost structures.

US yields at a 19-year high: pressure on tech stocks and indices

The yield on the benchmark 10-year U.S. Treasury rose intraday on September 15 to above 5.02%, reaching a 19-year high. Although the figure settled at just around the psychologically important 5.0% threshold by the close of trading, the effects on equity markets remain clearly visible. Higher rates on risk-free government bonds not only raise companies’ financing costs, but also reduce the present value of future earnings. This is weighing especially on highly valued growth and technology stocks in the Nasdaq Composite (-0.78%), but also on the S&P 500 (-0.45%) and the Dow Jones (-0.63%).

Oil price shock fuels inflation concerns ahead of the Fed meeting

The tension is further intensified by the latest developments in commodity markets. Brent crude rose to above 108 US dollars per barrel, while WTI crude climbed above the 105 US dollar mark. In addition to ongoing geopolitical tensions in the Middle East, reports of damage to Saudi Arabia’s East-West pipeline are constraining supply. For the Fed, this increases the risk of renewed inflationary pressure. In money markets, this concern is reflected in a high probability of around 92% to 93% for a 25-basis-point increase in the key interest rate.

Technical signal from the New York Fed: No expansion of T-bill purchases

Additional attention was drawn by the announcement from the Federal Reserve Bank of New York that it will again make no purchases of U.S. Treasury bills for reserve management purposes during the monthly period from September 15 to October 14. Reinvestments of maturing securities totaling around 15.6 billion US dollars will continue. The Fed considers liquidity in the banking system, with reserves of more than 3.0 trillion US dollars, to be fully sufficient. Market observers emphasize that this is operational reserve management and not a monetary tightening measure.

Strategic assessment for private investors and ETF investors

The environment of 5% yields and high commodity prices calls for a clear assessment within investor portfolios. Higher yields on fixed-income securities are making bonds attractive again relative to equities, which is leading to capital reallocation. While broadly diversified ETFs on the MSCI World or Nasdaq are suffering from discounting pressure, clear sector differences are emerging: the energy sector benefits from higher crude oil prices, whereas interest-rate-sensitive sectors such as technology, consumer goods and utilities are under pressure. Before adjusting position sizes, investors should wait for the Fed’s statement and outlook.

The return of U.S. bond yields to the 5% mark, together with rising oil prices, is a warning to exercise caution. Private investors should review their portfolios for interest-rate and commodity sensitivities, but keep a cool head and await the U.S. central bank’s specific comments on the дальнейшее rate path.