Just a few days after updating all-time highs on Wall Street, the stock market sharply reversed downward. The cause was massive pressure on the U.S. government bond market, which triggered a surge in yields to levels not seen in decades.
On Tuesday, the key S&P 500 and Nasdaq Composite indices fell to two-week lows. At the same time, yields on long-term U.S. Treasury bonds soared to their highest levels in nearly twenty years. This is a classic signal of capital flowing from risky assets into safe havens, but with a significant nuance: yields are rising not because of demand for a "safe haven," but because of active selling of the bonds themselves.
Records and Reversal
Recall that on August 13, the S&P 500 closed at an all-time high of 7,798.99 points. At that time, the market was fueled by moderate inflation data and strong earnings from companies related to artificial intelligence. A day earlier, on August 5, the Dow Jones Industrial Average also set a record closing high. However, just a few days later, sentiment changed dramatically.
The Nasdaq Composite is now testing two-week lows, and chipmaker stocks, which were the main growth drivers, have sharply lost value and no longer pull the market upward. Significantly, the correction has not only affected the U.S.—the global nature of the sell-off is evident.
How Bonds Pressure Stocks
The yield on 10-year U.S. Treasury bonds rose to 4.748%—the highest since January 2025. 30-year bonds hit a 19-year peak, reaching 5.33%. The spread between short-term and long-term rates in the U.S. became the widest in four years, indicating that investors are demanding a higher premium for long-term risk.
The sell-off was not limited to the United States. This week, the yield on 10-year Japanese government bonds reached a 30-year high of 2.945%. Concerns about a peace agreement in the Middle East pushed oil prices up, intensifying inflation expectations. Meanwhile, businesses are issuing corporate bonds at a record pace, competing with government securities for investor money. According to SIFMA, the volume of corporate bond issuance since the start of 2026 has nearly reached $1.7 trillion—at the current pace, it will likely exceed last year's record of $2.2 trillion.
A Market in Motion
Asian markets have already reacted to the overall decline: South Korea's KOSPI fell by 1.5%, Japan's Nikkei lost 2.5%, and the Philippine chip manufacturer index dropped by 5%. Investors are reassessing valuations of AI-related assets that previously seemed invulnerable.
After the pullback, Tom Lee's warnings from Fundstrat are sounding increasingly convincing. He stated that for the S&P 500 to sustainably rise above 8,000, the market may need a 10% correction. The release of the U.S. Federal Reserve meeting minutes on Wednesday may provide an answer as to whether there will be a pause or the decline will continue. Investors are already awaiting the preliminary review of the minutes—this is the next major event for stock and bond markets.
My view: the current situation is not just a technical correction, but a fundamental shift in risk assessment. The bond market is signaling that the era of cheap money has definitively ended, and stocks, especially in the technology sector, have not yet fully priced in this factor. Investors should prepare for increased volatility and a reassessment of risk premiums in the coming weeks.