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Wall Street hit a new rate wall Wednesday. The 10-year Treasury yield jumped to 5.106%. The 2-year rose to 4.891%. October Fed hike odds climbed to 66%.

And the Nasdaq fell 1.13%. The trigger was hot U.S. data. Business activity hit a 5-year high. New orders jumped. Prices rose. Then a weak Treasury auction pushed yields even higher.

Wednesday, September 23

The day started with one number. 58.4. S&P Global’s U.S. Composite PMI rose to 58.4 in September from 56.0 in August. That was its highest level since July 2021.

Anything above 50 points to growth. A reading near 60 shows much faster growth. Investors had spent months asking whether high rates would slow the economy. Wednesday’s report said not yet.

The details were even stronger. New orders rose to 58.2 from 55.2. That was the highest reading since March 2022. Demand grew across both manufacturing and services.

Backlogs also reached their highest level since May 2022. That means firms are getting work faster than they can finish it. For companies, that is strong demand. For the Fed, it can mean more price pressure.

The same report showed higher input costs. The measure of prices paid by businesses reached its highest level in nearly 4 years. Supplier delivery times also slowed.

That mix matters. Strong orders lift demand. Slower deliveries can limit supply. When both happen at once, prices can rise. That is exactly what the Fed does not want to see.

Rate traders reacted fast. The chance of another 25-basis-point Fed hike in October rose to 66%. Earlier Wednesday, the odds were near 53%. That is a large move in one session.

The Fed raised rates only last week. Now markets see another hike next month as much more likely than not. Fed Governor Michael Barr added to the move. He said more rate increases may still be needed while inflation remains above the Fed’s 2% goal. Strong growth gave traders another reason to agree.

The bond market took the hardest hit. The 10-year yield jumped almost 14 basis points to 5.106%. That was its highest level since 2007. It was also one of its sharpest daily jumps in more than a year.

The 2-year rose 11.4 basis points to 4.891%. It briefly touched 4.947%. Short- and long-term Treasury yields are now clustered close to 5%. That is a hard number for stocks to fight.

Investors can earn about 5% from U.S. government debt. High-priced stocks need stronger earnings growth to beat that. Wednesday, tech could not.

The economic data was not the only reason yields jumped. The Treasury sold $70 billion of 5-year notes Wednesday. Demand was weak. The notes sold at their highest auction yield since 2007.

That matters because the U.S. government needs buyers for a large amount of debt. When demand is weak, yields rise to attract them. So Wednesday gave bonds two reasons to sell.

Growth was hotter. Demand for new Treasury debt was weak. Yields moved higher on both.

The Nasdaq had closed at records on Monday and Tuesday. Wednesday broke that run. The index fell 1.13%. Nvidia lost 1.5%.

Alphabet dropped 3.8%. Amazon fell 2.2%. The chip index lost 1.2%. That was a sharp turn from the start of the week.

On Monday, lower oil and lower Treasury yields sent AI shares higher. Wednesday gave investors the opposite. Oil rose. Yields rose. Tech fell.

Expedia and Airbnb each fell more than 7%. Investors are still asking how fast AI tools could change online travel, shopping and search. Meta’s Muse assistant has added to that question.

Meta itself gained about 1% Wednesday. The split is getting clearer. Companies tied to AI tools and hardware can still win. Some firms that sit between the customer and the purchase are facing more pressure.

Oil reversed its recent drop. Brent jumped 4.28% to $103.50. WTI rose 2.3% to $92.60. The move came as hopes for a quick U.S.-Iran deal faded.

That matters because crude had fallen below $100 earlier this week as more supply reached buyers. Wednesday put some of that risk back. Brent is above $100 again. That raises fuel and transport costs. It also gives the Fed another price to watch.

Gold fell 1.64% to $4,283.40 an ounce. The reason was clear. Treasury yields surged. The dollar strengthened.

And traders raised Fed hike odds. Gold pays no interest. A 5.1% Treasury yield gives investors a high return from government bonds. That makes gold harder to hold when rates rise fast.

Wednesday left markets with a short list of hard numbers:

Tuesday’s market liked oil below $100 and yields below 5%. Wednesday took both away. The 10-year hit 5.106%. The 2-year reached 4.891%. October hike odds jumped to 66%.

The Nasdaq fell 1.13%. Brent closed above $103. Wednesday gave Wall Street one clear message. Stronger growth is now pushing rates higher. The economy ran hot. Yields hit 5.1%. Tech paid the price.