Stocks closed down yesterday, but off their lows of the day.

Rising oil prices, as a result of increasing tensions in the Middle East and worries over new and prolonged supply disruptions, weighed on stocks.

Rising Treasury yields also took its toll. The 10-year briefly topped 5% yesterday, before pulling back to close at 4.96%. At its intraday peak, it was the highest it's been since October 2023. And prior to that, you'd have to go all the way back to 2007 to beat it.

There are plenty of reasons why yields are rising. And not just here, but globally. For one, massive Treasury issuance is flooding the market, which is causing U.S. yields to rise. That too causes other yields to rise as capital flows force convergence.

There's also massive corporate borrowing for AI and data center buildouts, which competes directly with Treasuries. That also leads to increased yields.

Higher inflation is also one of those catalysts for higher yields.

Last week's inflation reports showed wholesale inflation (PPI) rising faster than expected, but retail inflation (CPI) was more subdued and actually showed annual core inflation easing.

But expectations remain high that the Fed will raise rates by a quarter-point come Wednesday's FOMC Announcement. Per the CME FedWatch, probabilities for a rate hike stand at 92.4%.

If they do raise rates, which is widely expected, it might be viewed as welcomed news by the market. Yields have been climbing higher on their own without the Fed. And a rate hike would align with the market, and underscore the Fed's independence, and prove their commitment to fighting inflation.

The key question, however, is whether the Fed signals more tightening ahead, or hints at a pause (one and done).

The Announcement comes out tomorrow at 2:00 PM ET, which is followed by the Fed Chair Press Conference at 2:30.

In the meantime, we've got a busy day or economic reports out today. That includes MBA Mortgage Applications, Retail Sales, Import and Export Prices, Business Inventories, and the Housing Market Index.

And, of course, the market will be listening for any news out of the Middle East, and how it might affect shipping routes.

See you tomorrow,