Key Highlights

● The 10-year yield posted its largest one-day drop in more than a year.

● The Dow Jones Industrial Average ended up 11.89 points at 52,867.98.

● Consumer staples posted their best day since April 2025 and a record high.

● About two of every three S&P 500 stocks rose on Thursday.

Treasuries were already rallying before US stock markets opened on Thursday, October 22, and one rates strategist had a crisp explanation. "Treasuries rallied overnight as tech stocks came under pressure amid renewed AI valuation fears," he said.

By the close, the move had become one of the biggest of the year. The 10-year Treasury yield closed back below a closely watched threshold for the first time since September 22 and posted its largest one-day drop in more than a year, though sources differed on exactly how long it had been.

The overnight trigger

The pressure began with earnings on Wednesday evening. Meta Platforms (NASDAQ:META) reported record revenue of $64.6 billion but raised the low end of its 2026 capital spending range to $135 billion to $145 billion and posted negative free cash flow of $2.12 billion, its first cash outflow in more than a decade. Lam Research (NASDAQ:LRCX) also cited supply constraints alongside guidance whose midpoint was slightly below hopes.

Asian markets sold off overnight. South Korea's Kospi, Hong Kong's Hang Seng and Japan's Nikkei all fell, and China's CSI 300 entered a bear market. As investors cut risk, they bought government bonds, which is the dynamic the strategist described.

How the day unfolded

The selling in stocks deepened through the session. The Nasdaq Composite fell 694 points to 26,008.86, its steepest drop since June 5, while the S&P 500 lost 93.74 points to 7,663.43, its worst day since July. The Philadelphia Semiconductor Index had its biggest one-day drop since June 23.

Nvidia (NASDAQ:NVDA) was the single biggest drag on the S&P 500, after CEO Jensen Huang said "The demand of the capital is much greater than the availability of the capital."

Treasuries kept climbing. Two-year and five-year yields fell sharply too, while the 30-year moved less. Earlier in the month, on October 7, the 10-year yield had touched its highest since April 2002.

Who benefited

The bond rally rippled into rate-sensitive stocks. Homebuilders including Lennar (NYSE:LEN) and PulteGroup (NYSE:PHM) rallied, and Home Depot (NYSE:HD) climbed with housing names. Freddie Mac's weekly mortgage rate eased from the prior week. Utilities, real estate and consumer staples also gained, with staples posting their best day since April 2025 and a record high.

Under the surface, the stock market was not uniformly weak. About two of every three S&P 500 stocks rose, and the Dow Jones Industrial Average ended up 11.89 points at 52,867.98.

The rally came despite rising oil. Brent hit $113.17, its highest since May 4. "If oil is about to spark an inflation wave, the bond market hasn't heard about it," one market commentator said.

Not all bond demand was strong. A five-year TIPS auction drew the lowest bid-to-cover ratio since April 2025.

How long the Treasury rally can last

If the strategist's explanation holds, the bond rally may depend on how long tech stays under pressure. One analyst cautioned that "it will take more than one or two days to change the trend."

Friday brings S&P Global PMIs and the final University of Michigan sentiment reading. The Federal Reserve, chaired by Kevin Warsh, announces its decision on October 28, the same day Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) report. Third-quarter GDP and September PCE inflation arrive on October 29, data that could either extend the Treasury rally or reverse it.