Why Higher Oil Means Higher Loan Costs and Lower Stocks

Brent crude rose 3.9% to $103.08 a barrel on September 23, while West Texas Intermediate rose 1.8% to $92.16. The Wall Street Journal reported traders were weighing U.S.-Iran talks and pipeline news.

The jump followed fighting between the U.S. and Iran that had already pushed oil and long-term borrowing costs higher, according to The Wall Street Journal on August 31. On September 1, Reuters reported the Dow fell 0.79%, the S&P 500 fell 0.71% and the Nasdaq fell 1.03%. Stocks fell as the 10-year Treasury yield, the interest rate the government pays to borrow for 10 years, rose back above 5% to its highest since 2007. That yield rose above 5.1%, The Wall Street Journal reported September 1.

Pressure lasted into September 23-24. Reuters reported September 23 that Wall Street closed lower, dragged by Alphabet and Amazon as bond yields rose. Yields on 2-year Treasuries hit their highest since 2024. Tech led the S&P 500 lower, with Nvidia, Broadcom and Microsoft each down more than 1%, September 24 market reporting showed. Agence France-Presse reported September 24 that stocks fell as oil rose and bonds fell under pressure, with the 10-year at its highest since 2007.

The Associated Press put the 10-year at 5.15% on Thursday, up from 5.11% late Wednesday. It stayed above the 5% level first reached again in early September.

Fewer stocks took part in any gains. On September 15, falling stocks beat rising stocks by 2.56 to 1 on the NYSE, with 113 new highs and 673 new lows. On September 18, Nasdaq had 1,973 stocks up and 2,810 down, a 1.42-to-1 ratio of losers to winners.

That was a change. The S&P 500 had risen in 11 of the prior 12 weeks, led by tech stocks, before a 1.4% drop led by Big Tech. On September 22, Reuters reported the Nasdaq still rose 0.45% to 27,244.28 for a second record close, while the Dow fell 0.36% to 51,863.69. Background reporting tied the jump in oil and gas prices to fears of rising prices and fewer interest-rate cuts.

The broader context here is that expensive oil hits family budgets and borrowing at the same time. Think of the 10-year yield like the anchor for mortgages and business loans. When oil lifts the cost of living, investors demand higher pay to lend for a long time. That pushes yields up and pulls stock prices down, especially for big tech stocks whose profits are expected far in the future.

In my view, the risk to watch is oil and yields rising together. Normally different parts of the market balance each other. Here they did not. Energy stocks are too small a share of the market to make up for tech losses. With the 2-year at a high since 2024 and the 10-year over 5%, markets are betting rate cuts will be removed, not that new hikes are coming. That leaves stocks tied to each oil report.