NEW YORK — The 10-year Treasury yield broke through 5 percent on Friday as crude oil held above $100 a barrel, intensifying inflation expectations and lifting Federal Reserve rate-hike odds to their highest level in weeks.
The S&P 500 gained 11.53 points, or 0.12 percent, to 7,647.19. The Nasdaq Composite advanced 92.72 points, or 0.35 percent, to 26,511.01. The Dow Jones Industrial Average fell 114.74 points, or 0.22 percent, to 51,663.30.
Market positioning tightened as the week wound down. Investors showed reluctance to build new directional bets ahead of the weekend, citing the risk of unforeseen geopolitical events triggering sharp moves early in the session.
"There's genuine exhaustion in the market," said Chuck Carlson, chief executive officer of Horizon Investment Services. "Investors are working through what the Fed's next moves mean for both equities and fixed-income allocations. Oil is the key variable — every time crude ticks higher, even briefly, equities get a lift."
Persistent crude prices above $100 have pushed diesel to record highs, fueling expectations of broader cost pressures on transportation and agriculture. The sustained elevation in energy costs complicates the Fed's inflation fight and erodes margin support for equities.
Crude pared some gains on Friday after China, at Saudi Arabia's request, asked Iran to rein in Houthi attacks on Saudi oil infrastructure. The diplomatic intervention offered temporary relief from escalating oil-driven inflation fears.
Fed rate-hike odds have surged dramatically. CME FedWatch now prices a greater than 50 percent probability of a rate increase at the October meeting—up from 42.5 percent last Friday and just 7.2 percent a month ago. The shift reflects market conviction that higher crude prices and sticky inflation will force the central bank's hand.
The 10-year yield above 5 percent introduces acute duration risk. Existing bond portfolios face mounting losses as yields climb, compressing spreads and undermining fixed-income returns across the board.
