(Aug 19): A sell-off in chipmakers sent stocks lower, with the market also falling as growing anxiety about inflation and rising government debt kept bond yields elevated.

This year’s best-performing corner on Wall Street got pummeled, driving a closely watched gauge of semiconductor firms down by 5%. The Nasdaq 100 declined 1.7%. While Treasuries barely budged, 10-year yields remained near the highest levels since early 2025. Oil settled around US$85, with the US and Iran stuck in a deadlock over control of the Strait of Hormuz.

“The combination of higher energy costs and higher long-term borrowing costs is becoming increasingly uncomfortable,” said Fawad Razaqzada at Forex.com. “Equity investors have finally started to respond by going a bit defensive.”

Longer-dated bonds are at the epicentre of angst about everything from inflation to the debt-laden artificial-intelligence (AI) boom. One fear is that geopolitical turmoil will make economies more prone to supply shocks, with investors also worried that governments will fail to rein in spending.

The supply of debt financing from AI demand and government deficits looks to keep upward pressure on yields, according to veteran strategist Louis Navellier.

“Thankfully, with earnings soaring and profit margins at all-time highs, stocks can still be seen as attractive,” he added.

Ed Yardeni says he’s not pushing the panic button, but is keeping a close eye on whether the “bond vigilantes” might do so.

The founder of his eponymous research firm coined that term in the 1980s to describe investors selling bonds to set the government back on a course of fiscal restraint.

“We are sticking with our view that the US bond yield should continue to trade in a normal range of 4%-5%, without causing any adverse consequences for the economy and corporate earnings,” Yardeni noted. “Nevertheless, now that the yield is approaching the top of this range, we are monitoring the activities of the bond vigilantes more closely.”

Higher interest rates don’t matter until they do, according to Matt Maley at Miller Tabak. Therefore, the recent rise in yields is something investors will need to monitor closely as we move through the rest of August and into the fall months, he added.

Uploaded by Isabelle Francis