Wednesday’s flash purchasing managers’ surveys were forecast to show a mild cooling. They showed an acceleration, and the bond market repriced October within minutes.

S&P Global’s composite output index reached 58.4 in September from 56.0 in August, the fastest expansion since July 2021. The manufacturing PMI printed 57.0 against a 53.4 forecast and 53.9 in August, a 52-month high. Services business activity came in at 58.7 against 56.0 expected and 56.5 in August, the strongest reading in 59 months. Both are flash estimates measured against August finals, so the month-on-month gains are real rather than an artefact of the revision cycle.

The trouble sat beneath the headline. Input cost inflation ran at its highest since October 2022 on fuel, freight and emerging wage pressure. Backlogs of uncompleted work built at the sharpest pace since May 2022 and supplier delivery delays approached two-decade extremes. Chris Williamson called it a boom colliding with severe supply-chain bottlenecks. For a committee that raised rates on 16 September, demand outrunning capacity is the cleanest available argument for doing it again in October.

Treasuries moved first. The 10-year closed at 5.11%, fifteen basis points above Tuesday’s 4.96% and, by market commentary, the highest since 2007. The two-year added fourteen basis points to 4.85% and the five-year sixteen to 4.99%, a whisker from five percent.

Small caps took the worst of it. The Russell 2000 fell 1.77% to 2,838, the day’s largest decline. Smaller companies carry more floating-rate and near-term refinancing exposure than the large-cap indices, so a fifteen-basis-point move in the belly of the curve lands directly on their interest expense rather than on a discount-rate assumption.

Long-duration growth followed. The Nasdaq Composite dropped 1.13% to 26,936. Valuations built on distant cash flows compress hardest when the risk-free rate resets upward, which is the standard mechanism and it behaved as advertised.

Income proxies were sold as bond substitutes. Utilities and REITs underperformed, their yields suddenly less compelling against a five-percent Treasury.

Energy provided the day’s contradiction. The Energy Information Administration reported commercial crude stocks up 3.0 million barrels for the week ending 18 September, to 426.4 million, against a consensus draw of roughly 641,000 barrels and a 640,000-barrel decline the week before. Cushing added 2.3 million. Refineries ran at 94.0% of capacity. WTI rose anyway, up $1.64 to $92.16, with diplomacy and supply risk outweighing an unambiguously bearish inventory report.

The S&P 500 closed down 0.75% at 7,706 and the Dow lost 0.68% to 51,512.

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