By Johann M Cherian and Tharuniyaa Lakshmi
Oct 1 (Reuters) - The S&P 500 fell to a two-week low on Thursday as a global bond selloff, fueled by higher oil prices and inflation concerns, pushed US Treasury yields to multi-decade highs and overshadowed a rally in software stocks.
Markets came under renewed pressure as longer-dated Treasury yields rose after ISM data showed a jump in manufacturing input prices, stoking inflation concerns.
The benchmark 10-year Treasury note touched 5.3445%, its highest
since April 2002, after posting its biggest quarterly advance since 1994.
"The ISM number came out and, in particular, the prices paid component of that number was higher than expected. It's a very inflationary number; people get nervous about that, and it caused bond yields to go even higher," said Joe Saluzzi, co-founder of equity trading at Themis Trading.
Oil prices added to inflation worries, with Brent crude jumping $3 to $101.76 a barrel after China suspended fuel exports, threatening to tighten already constrained markets. [O/R]
The selloff followed a rocky September for equities, with the S&P 500 and Dow posting declines in a historically weak month for stocks, while AI enthusiasm lifted the Nasdaq.
Surging bond yields are putting lofty stock valuations under fresh scrutiny, raising the stakes for corporate earnings as persistent inflation keeps borrowing costs elevated.
"When a safe government bond pays more than 5%, stocks have to earn their keep. Company profits become the whole story," said Brian Jacobsen, chief economist, Annex Wealth Management.
"Third-quarter earnings reports start in mid-October. They are the next big test."
Rate-sensitive stocks fell, with housing down 1.1% and banks shedding 1.3%. Bond proxies real estate, utilities and consumer staples sector indexes were all in the red.
The Cboe VIX index, seen as Wall Street's fear gauge, climbed to a two-week high and was last at 17.07 points.
At 12:11 p.m., the Dow Jones Industrial Average fell 153.69 points, or 0.30%, to 50,752.36, the S&P 500 lost 13.00 points, or 0.17%, to 7,638.49 and the Nasdaq Composite lost 48.98 points, or 0.18%, to 26,812.08.
Technology was a pocket of strength, with software shares rallying on results from Accenture. The IT consulting firm's shares surged 18% after forecasting full-year revenue growth above estimates. Rival Cognizant climbed 6.4%.
The S&P 500 software index firmed 0.8% to its highest since November, outperforming the broader tech index's 0.1% advance.
"A lot of institutions feel they're underinvested in software. That was clearly the case with Accenture, and investors are quickly reevaluating their views on the company," said Steve Sosnick, chief market analyst at Interactive Brokers.
Micron Technology's better-than-expected revenue forecast and $32 billion customer commitments under its supply agreements reinforced faith in the AI trade. Micron shares, however, slipped about 1.7% after nearly quadrupling this year.
Softer-than-expected inflation data on Wednesday bolstered expectations that the Federal Reserve would hold rates steady in October, with traders pricing in a 68% chance of a pause, while a December hike remained possible as inflation stayed above the Fed's 2% target.
Among other stocks, Constellation Energy rose 2% after the utility signed a 20-year power purchase agreement with Amazon.com.
Declining issues outnumbered advancers by a 1.55-to-1 ratio on the NYSE and by a 1.47-to-1 ratio on the Nasdaq.
The S&P 500 posted three new 52-week highs and 40 new lows, while the Nasdaq Composite recorded 24 new highs and 236 new lows.
(Reporting by Johann M Cherian, Tharuniyaa Lakshmi and Medha Singh in Bengaluru; Editing by Arun Koyyur and Anil D'Silva)
