Major global stock indices broadly declined on Friday, while bond yields rose sharply. The pullback followed a cooling of the recent fervor for technology shares, a resurgence of inflation concerns, and traders increasing bets that the Federal Reserve will begin raising interest rates this year.
On Friday, renewed uncertainty over a Middle East peace agreement pushed oil prices higher. Earlier in the week, the release of two consecutive high inflation readings for April in the United States further intensified market worries about persistent price pressures.
In the prior two sessions, the S&P 500 and Nasdaq Composite had reached consecutive record closing highs, driven by strength in artificial intelligence-related technology stocks. However, both indices faced significant selling pressure on Friday.
"The market is finally recognizing that the prior rally was overextended, ignoring signals from the bond market and economic data while chasing the AI narrative," said Kenny Polcari, Chief Market Strategist at SlateStone Wealth. "Now, the market is confronting the reality: inflation is sticky and could move even higher in the coming months."
Wall Street closed lower across the board. The Dow Jones Industrial Average fell 432.76 points, or 0.86%, to close at 49,630.70. The S&P 500 dropped 75.90 points, or 1.01%, to 7,425.34. The Nasdaq Composite declined 387.22 points, or 1.45%, to 26,249.36.
The MSCI All-Country World Index fell 15.80 points, or 1.42%, to 1,100.26, while the pan-European Stoxx 600 index lost 1.56%.
In the Asia-Pacific region, the MSCI Asia ex-Japan index fell 2.54%. Japan's Nikkei 225 index declined 1.99%, pressured by data showing the nation's wholesale inflation in April rose to 4.9%, a three-year high that bolstered expectations for a Bank of Japan rate hike. South Korea's Kospi index plunged over 6% on Friday, though it maintains a year-to-date gain of 77.8% following months of strong advances.
In the bond market, U.S. long-term Treasury yields climbed to their highest levels in a year. The move was driven by concerns over potential energy supply disruptions in the Middle East, which kept oil prices elevated, alongside persistent inflation worries. These inflation fears have dampened demand for U.S. government debt, resulting in weak demand at several Treasury auctions this week.
The yield on the benchmark 10-year U.S. Treasury note rose 11.6 basis points to 4.576%, up from 4.459% at Thursday's close. The yield on the 30-year Treasury bond increased by 10.1 basis points to 5.1137%.
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