NEW YORK — U.S. stocks rose across all three major indexes on hopes that the Strait of Hormuz will reopen and that Washington and Tehran will find a diplomatic solution. But the outlook for talks remains fragile after reports that the U.S. is skeptical of Iran's negotiating offer.
Meanwhile, U.S. Treasury yields have broken through the psychologically significant 5% level for days on end, prompting analysts to say a new normal of high inflation and high interest rates has arrived. Recent yield moves, which have pushed borrowing costs to their highest levels in decades, point to a fundamental shift rather than a temporary slump in the bond market, according to that analysis.
On the 25th, the three major U.S. indexes all advanced on expectations for a reopening of the Strait of Hormuz and a diplomatic resolution between the U.S. and Iran.
The Dow Jones Industrial Average closed at 51,828.62, up 478.64 points, or 0.93%, from the previous session. The Standard & Poor's 500 rose 39.28 points, or 0.51%, to 7,743.41, and the tech-heavy Nasdaq Composite gained 129.34 points, or 0.48%, to 27,068.72.
Investor sentiment improved as oil prices fell more than 2% on hopes for progress in U.S.-Iran talks and a reopening of the strait.
West Texas Intermediate crude for November delivery settled at $92.41 a barrel on the New York Mercantile Exchange, down $2.20, or 2.33%. Brent crude for November, the global benchmark, closed at $104.32 a barrel, down $2.28, or 2.14%.
Reuters reported that Iranian Foreign Minister Abbas Araghchi said Iran had offered to reopen the Strait of Hormuz in exchange for an end to hostilities on all fronts, including Lebanon, within seven days, the lifting of a blockade on Iranian ports, the release of frozen funds and an exemption from oil sanctions. The Wall Street Journal reported, however, that President Donald Trump is skeptical of negotiations with Iran and is considering renewed airstrikes after the November midterm elections. Continued attacks on Saudi Arabia by Yemen's Iran-aligned Houthi forces are also keeping concerns about Middle East oil supply disruptions alive, supporting prices.
Treasury yields top 5% day after day as high inflation and high rates become the new normal
The yield on the 10-year U.S. Treasury note, the global bond benchmark, was trading in the 5.10% range on the 25th. It had climbed as high as 5.22% the previous day, the highest level since June 2007. The 30-year yield rose to 5.501% a day earlier, its highest since 2004, and stood in the 5.40% range on the 25th. The five-year yield also broke above 5% on the 23rd for the first time since 2007, leaving yields across nearly all maturities settled at or near 5%.
The trend is not confined to the U.S. The average sovereign bond yield worldwide stood at 4.04%, the highest since 2000, according to Bloomberg's global sovereign bond index. More broadly, the recent surge is seen as part of a multi-year climb out of the low-rate era that followed the global financial crisis and the COVID-19 pandemic. Analysts now describe 5% as the new baseline for U.S. Treasury yields.
The bond selloff has been driven largely by a spike in oil prices following the renewed U.S.-Iran conflict. Surging demand for capital to fund artificial intelligence investment, the federal government's large budget deficit and the Federal Reserve's tightening stance have compounded the move.
Market participants see room for yields to rise further. In Bloomberg's Markets Pulse survey of 173 financial market professionals, 53% expected the 30-year Treasury yield to exceed 6% this year. That would be the first such move since 2000, during the dot-com bubble.
Separately, U.S. consumer sentiment fell to its second-lowest reading on record, weighed down by high prices and concerns about a slowing economy. The University of Michigan said on the 25th that its final September consumer sentiment index came in at 48.1. That was up from the preliminary reading of 47.8 but down 7.0% from 51.7 in August, the lowest in four months since May.
The index stood at 44.8 in May, the lowest since the survey began in 1952. All four of the lowest readings on record have come in the past six months. CNN noted that U.S. consumer sentiment is now worse than during the oil shocks of the 1970s, the Sept. 11 attacks, the COVID-19 pandemic and the 2022 inflation surge.
Concerns about prices have also intensified. Consumers' expectations for inflation over the coming year jumped to 4.6% in September from 4.0% in August, the highest since June. That is well above the 3.4% recorded in February, before the U.S.-Iran conflict erupted.
