Treasury Yields, Oil Keep US Stocks Mixed; Nasdaq Falls 0.4%

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U.S. stocks were mixed on May 18 as investors tracked swings in Treasury yields and oil prices after developments involving the U.S. and Iran.

The S&P 500, coming off its worst drop since March, opened slightly higher but was down 0.1% as of 10:35 a.m. in New York. The Dow Jones Industrial Average rose 0.1%. The tech-heavy Nasdaq Composite fell 0.4% as semiconductor shares slid across the board.

Nvidia dropped 1.6% and Micron Technology fell 3.2%. AMD, Broadcom and Intel also declined.

Treasuries rebounded after bond prices had tumbled on concern that central banks may raise interest rates in response to inflation. The yield on the 10-year Treasury note fell 1 basis point to 4.585%.

Earlier in the day, Iranian media reported that the U.S. had proposed a temporary sanctions waiver as part of peace talks aimed at ending the war and reopening major energy shipping routes. Brent crude fell to as low as $108 a barrel. West Texas Intermediate traded at $104, down 0.8%.

“A lot hinges on oil prices right now, so it remains to be seen whether stability will hold,” said Fawad Razaqzada of Forex.com. A renewed rise in oil would add pressure to the bond market and limit appetite for risk assets, he added.

Tasnim News Agency reported that the U.S. has not yet decided whether to offer a sanctions waiver that would remain in effect until a final agreement is reached. President Donald Trump earlier voiced frustration with Iran just hours after it struck a nuclear power plant in the United Arab Emirates in a drone attack, warning that “there is not much time left.”

On Bloomberg TV, Bank of America's Francisco Blanch said lower oil prices depend on whether a blockade preventing shipments from the Persian Gulf through the Strait of Hormuz is lifted. The bigger problem, he added, is that global supply is too tight for prices to fall easily.

Stress in global bond markets has become a central issue in recent weeks, and finance ministers from the Group of Seven discussed inflation risks tied to higher oil prices.

The Paris meeting had been intended to address a range of imbalances, from the U.S. fiscal deficit to weak Chinese consumption. But bond-market conditions pushed ministers and central bank officials to focus on surging yields fueled by inflation concerns.

Ed Yardeni, president of Yardeni Research, said financial markets are already pricing in higher rates for longer even if Trump presses newly appointed Federal Reserve Chair Kevin Warsh to cut rates. The macroeconomic backdrop no longer supports an accommodative policy stance, he said.

Ulrike Hoffmann-Burchardi, chief investment officer at UBS, said volatility in bond yields will increase the longer the Strait of Hormuz remains closed. Markets are already reflecting the risk of faster global inflation and tighter monetary policy, she said.

Kim Jung-a, guest reporter at Hankyung.com, kja@hankyung.com