By Stephen Culp and Tharuniyaa Lakshmi
NEW YORK, Sept 15 (Reuters) - Wall Street extended its selloff on Tuesday, as rising U.S. Treasury yields, mounting debt concerns and soaring crude prices kept buyers on the sidelines.
All three major U.S. stock indexes extended Monday's losses as broad risk-off sentiment weighed on nearly every sector but energy. That sector benefited from expanding hostilities in the Middle East, which included new attacks on Saudi Arabia's energy infrastructure.
"Given rising
prices for fuel, especially diesel, given the near-certain outlook for rising rates beginning tomorrow, and given the concerns over the potential slowdown in the AI ecosphere, why step into the market aggressively until some of this clears up?" said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
The Federal Reserve has convened for its two-day monetary policy meeting, which is due to culminate on Wednesday with the central bank's rate decision. With recent economic data showing the labor market on solid footing, while war-related energy price pressures are morphing into broader, systemic inflation, the central bank is expected to implement a 25-basis-point increase to its Fed funds target rate — its first interest rate hike in over three years.
In the wake of last week's hot inflation data and the near 25% jump in U.S. crude prices over the last two weeks, financial markets have priced in more than a 95% likelihood of a rate hike on Wednesday, up from 33.1% one month ago, according to CME's FedWatch tool.
Tuz added that while markets will learn the Fed's decision tomorrow, "the Middle East conflict is a wild card as to how long it might last."
Front-month West Texas Intermediate and Brent oil settled up 4.4% and 2.9% respectively, while diesel futures closed at a record high.
"This will probably be not a one-and-done, but a series of rate increases," said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest in Elmhurst, Illinois. "It will be dependent on oil; that is really the source of inflation and it's starting to seep into other parts of the market."
As rate-hike bets increased, global bond yields resumed their upward climb, with benchmark U.S. Treasury yields breaching 5% and reaching the highest level since 2007.
Rising interest rates are increasing the pressure on heavily indebted borrowers, including companies that have placed big bets on AI.
Those worries exacerbated mounting fears over AI's destructive potential and growing opposition to the construction of data centers, which came to a head on Monday and dragged the Philadelphia SE Semiconductor index down.
According to preliminary data, the S&P 500 lost 34.47 points, or 0.45%, to end at 7,585.51 points, while the Nasdaq Composite lost 202.84 points, or 0.77%, to 25,983.58. The Dow Jones Industrial Average fell 330.74 points, or 0.63%, to 52,090.46.
Dave & Buster's tumbled following the company's second-quarter revenue miss.
Waystar rose after Reuters reported the healthcare software firm is exploring options, including a potential sale.
Weakness in bitcoin was compounded by the U.S. Senate not advancing comprehensive cryptocurrency legislation, in a blow to digital asset companies. Crypto firms Coinbase and Strategy closed sharply lower.
(Reporting by Stephen Culp; Additional reporting by Niket Nishant and Tharuniyaa Lakshmi in Bengaluru; Editing by Rod Nickel)
