Stocks Settle Sharply Lower as Bond Yields Jump on Inflation Fears

The S&P 500 Index ($SPX) (SPY) on Friday closed down -1.24%, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -1.07%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.54%.  June E-mini S&P futures (ESM26) fell -1.26%, and June E-mini Nasdaq futures (NQM26) fell -1.56%.

Stock indexes sold off sharply on Friday, weighed down by a broad selloff in global bond markets amid soaring crude oil prices that are fueling inflation fears.  Doubts over whether oil supplies from the Middle East will normalize anytime soon pushed WTI to a 1.5-week high on Friday, as peace talks between the US and Iran remain in limbo and the Strait of Hormuz remains closed.  The soaring crude prices sent bond yields spiking globally, with the Japanese 10-year JGB bond yield jumping to a 29-year high, the 10-year UK Gilt yield surging to an 18-year high, the 10-year German bund yield rising to a 15-year high, and the 10-year T-note yield climbing to an 11.75-month high of 4.60%. 

Stock indexes extended their losses on Friday after bond yields climbed further on hawkish US economic news that showed the May Empire manufacturing survey general business conditions unexpectedly rose +8.6 to a 4-year high of 19.6, stronger than expectations of a decline to 7.2.  Also, Apr manufacturing production rose by +0.6% m/m, stronger than expectations of +0.2% m/m and the largest increase in 14 months.

WTI crude oil prices (CLM26) surged more than +4% on Friday to a 1.5-week high as talks to end the Iran war remain in limbo.  The Strait of Hormuz remains essentially closed, as about a fifth of the world’s oil and liquefied natural gas transits through the strait.  On Wednesday, the International Energy Agency (IEA) said in a monthly report that global oil inventories declined at a rate of about 4 million bpd in March and April, and the market will remain “severely undersupplied” until October even if the conflict ends next month.  Goldman Sachs estimates that the current disruption has drawn down nearly 500 million bbl from global crude stockpiles, with the drawdown potentially reaching 1 billion bbl by June.

The markets are discounting a 3% chance of a -25 bp FOMC rate cut at the next FOMC meeting on June 16-17.

Earnings reports thus far in this reporting season have been supportive of stocks.  As of Friday, 83% of the 454 S&P 500 companies that reported Q1 earnings have beaten estimates.  Q1 S&P 500 earnings are projected to climb +12% y/y, according to Bloomberg Intelligence.  Stripping out the technology sector, Q1 earnings are projected to increase around +3%, the weakest in two years.

Overseas stock markets settled sharply lower on Friday.  The Euro Stoxx 50 closed down -1.81%.  China's Shanghai Composite fell to a 2-week low and closed down -1.02%.  Japan's Nikkei Stock Average dropped to a 1-week low and closed down -1.99%.

Interest Rates

June 10-year T-notes (ZNM6) on Friday closed down by -30 ticks.  The 10-year T-note yield rose +11.3 bp to 4.595%.  Jun T-notes slumped to a 15-month low on Friday, and the 10-year T-note yield jumped to an 11.75-month high of 4.598%.  Soaring crude oil prices on Friday raised inflation expectations and weighed on T-note prices, as WTI crude oil surged more than +4% to a 1.5-week high.  Bond markets are under pressure globally amid intensifying fears that surging energy prices from the war in the Middle East will force central banks to tighten monetary policy.  T-notes added to their losses on Friday after US economic news showed that the May Empire manufacturing survey general business conditions unexpectedly rose to a 4-year high, and that Apr manufacturing production posted its largest increase in 14 months.

European government bond yields moved sharply higher on Friday.  The 10-year German Bund yield rose to a 15-year high of 3.172% and finished up +12.4 bp to 3.167%.  The 10-year UK gilt yield jumped to a nearly 18-year high of 5.180% and finished up +17.8 bp to 5.172%.

Swaps are discounting an 88% chance of a +25 bp ECB rate hike at its next policy meeting on June 11.

US Stock Movers

Chipmakers sold off on Friday, giving back some of this week’s rally that pushed the S&P 500 and Nasdaq 100 to new record highs.  ARM Holdings Plc (ARM) closed down by more than -8% to lead losers in the Nasdaq 100, and Intel (INTC) closed down more than -6%.  Also, Micron Technology (MU) closed down more than -5%, and Lam Research (LRCX), Advanced Micro Devices (AMD), ASML Holding NV (ASML), Nvidia (NVDA), and KLA Corp (KLAC) closed down more than -4%.  In addition, Broadcom (AVGO) closed down more than -3%, and Analog Devices (ADI) and Microchip Technology (MCHP) closed down more than -2%.

Mining stocks retreated on Friday amid plunging gold, silver, and copper prices.  Hecla Mining (HL) and Anglogold Ashanti Ltd (AU) closed down more than -9%, and Coeur Mining (CDE) closed down more than -8%.  Also, Newmont Corp (NEM) closed down more than -6%, and Southern Copper (SCCO) and Barrick Mining (B) closed down more than -5%.  In addition, Freeport McMoRan (FCX) closed down more than -4%. 

Cryptocurrency-exposed stocks fell on Friday as Bitcoin (^BTCUSD) dropped more than -2% to a 1.5-week low.  Coinbase Global (COIN) closed down more than -7% to lead losers in the S&P 500, and Galaxy Digital Holdings (GLXY) closed down more than -7%.  Also, MARA Holdings (MARA) closed down more than -6%, and Strategy (MSTR) and Riot Platforms (RIOT) closed down more than -4%.

Airlines and cruise line operators were under pressure on Friday, as the +4% jump in WTI crude oil to a 1.5-week high raises fuel costs and dampens the companies’ earnings prospects. United Airlines Holdings (UAL), American Airlines Group (AAL), and Alaska Air Group (ALK) closed down more than -3%, and Southwest Airlines (LUV), Carnival (CCL), and Norwegian Cruise Line Holdings (NCLH) closed down more than -2%.  Also, Delta Air Lines (DAL) and Royal Caribbean Cruises (RCL) closed down more than -1%.

Energy producers and service providers moved higher on Friday amid the +4% jump in WTI crude oil. APA Corp (APA) closed up more than +5%, and Devon Energy (DVN) and Occidental Petroleum (OXY) closed up more than +4%.  Also, Exxon Mobil (XOM) closed up more than +3%, and ConocoPhillips (COP), Marathon Petroleum (MPC), Phillips 66 (PSX), Chevron (CVX), and Valero Energy (VLO) closed up more than +2%.

Dlocal Ltd (DLO) closed down more than -12% after reporting Q1 EPS of 14 cents, below the consensus of 17 cents. 

NU Holdings Ltd (NU) closed down more than -5% after reporting Q1 revenue of $4.97 billion, weaker than the consensus of $5.04 billion.

Figma Inc. (FIG) closed up more than +13% after raising its full-year revenue forecast to $1.42 billion to $1.43 billion from a previous estimate of $1.37 billion, stronger than the consensus of $1.37 billion. 

Dexcom (DXCM) closed up more than +6% to lead gainers in the S&P 500 and Nasdaq 100 after Elliott Investment Management took a stake in the company and struck a settlement that will put two independent directors on the board.

Papa John’s International (PZZA) closed up more than +6% after Reuters reported that Irth Capital is working to take the company private. 

Microsoft (MSFT) closed up more than +3% after Pershing Square said it has built a new stake in the company.

C.H. Robinson Worldwide (CHRW) closed up more than +2% after Citigroup upgraded the stock to buy from neutral with a price target of $199.

Earnings Reports(5/18/2026)

Agilysys Inc (AGYS), James Hardie Industries PLC (JHX), XP Inc (XP).