Major U.S. stock indices closed lower on Thursday, pressured by rising Treasury yields and a sharp jump in oil prices that weighed on investor sentiment.

The Dow Jones Industrial Average fell 0.35%, the S&P 500 dropped 0.36%, and the Nasdaq Composite declined 0.47%.

Among the so-called "Magnificent Seven" stocks, Google gained 1.32%, Apple rose 0.25%, Microsoft edged up 0.01%, while Meta Platforms slipped 0.10%, Amazon fell 0.20%, Tesla dropped 0.98%, and Nvidia declined 1.32%.

The benchmark 10-year Treasury yield climbed more than 5 basis points to 5.331%, approaching its highest level since 2002. The 30-year Treasury yield rose over 4 basis points to 5.702%, also near a 24-year high. The yield surge followed comments from Federal Reserve Governor Christopher Waller, who suggested the central bank may need to keep raising rates to contain inflation.

International oil prices rose sharply after President Trump indicated he was unwilling to reach a ceasefire agreement with Iran, and reports suggested the U.S. was preparing for an escalation in the Middle East. Brent crude futures jumped 4% to around $104 per barrel, while West Texas Intermediate (WTI) crude also gained 4% to approximately $92 per barrel.

Sectors highly sensitive to borrowing costs, such as banks and technology, came under renewed pressure. Intel and Marvell Technology both fell more than 2%, while Bank of America and Citigroup each dropped about 1%.

Recent wild swings in Treasury yields and oil prices have been rattling the stock market. Investors worry that elevated oil prices will drive inflation higher, forcing the Fed to raise rates further. Alexandre Baradez, chief market analyst at IG in Paris, said: "Every rebound in oil prices translates into higher bond yields and puts pressure on equities, even though the stock market is still showing some resilience. Technology and energy are the two main drivers of the U.S. market, so any sign of a slowdown is bound to have an impact."

The market is entering a new earnings season. Previously, stocks had largely withstood the pressure even as bond yields soared to multi-decade highs. Now, corporate earnings need to justify that resilience, especially as leading companies in artificial intelligence infrastructure are issuing billions of dollars in debt to finance their expansion plans.

Still, many investors remain optimistic about the stock market, believing the upcoming earnings season could fuel a new leg higher for the major indices. FactSet data forecasts that S&P 500 companies will report a combined earnings growth rate of about 30% for the third quarter, which would mark the third consecutive quarter of earnings growth exceeding 25%.

Courtney Garcia, senior wealth advisor at Payne Capital Management, said: "If corporate earnings remain strong, meeting or beating market expectations, they can support this stock market rally even with rates at high levels. High interest rates won't kill the market rally."

Palantir was one of the few stocks that rose on Thursday, gaining 2%. A Goldman Sachs research report expressed a bullish view on the company's growth potential in the AI wave, suggesting that benefiting from the rise of sovereign AI and customized applications, its total addressable market could see another step-change expansion.

In early European trading, French and other highly indebted countries' bonds came under renewed selling pressure, dragging European stocks to near three-month lows. The Stoxx 600 Banks Index fell as much as 2.2%, on track for its biggest two-day decline since March. Bank stocks continued to struggle.

The pan-European Stoxx 600 index dropped 0.85%, the UK's FTSE 100 fell 0.44%, France's CAC 40 declined 0.81%, Germany's DAX lost 0.77%, and Italy's FTSE MIB dropped 0.98%. Turmoil in the French bond market threatened to drag down the banking sector, which had been one of Europe's best-performing areas over the past year or so. Meanwhile, three European Central Bank policymakers once again issued inflation warnings.

Asian markets also closed under pressure: Japan's Nikkei 225 fell 1.42%, South Korea's KOSPI plunged 2.62%, Australia's S&P 200 dropped 0.77%, and China's CSI 300 declined 1.09%.

Markets are now fully pricing in a Fed rate hike in December. Another layer of uncertainty stemming from the Middle East conflict continues to simmer. The situation shows no signs of ending and continues to keep oil prices elevated. High energy costs further reinforce expectations that central banks will keep raising rates to curb inflation, and the market has now fully priced in a 25 basis point Fed rate hike in December.

Fed Governor Waller said further rate increases may still be needed to slow inflation, though officials retain some flexibility on the timing of hikes. Speaking in Istanbul on Thursday, Waller said: "If economic data continues to come in as expected, I anticipate further rate increases will be needed to bring inflation back to the 2% target in a timely manner. Rate hikes do not need to happen at consecutive meetings, but they should be implemented within an acceptable timeframe."

Expectations of a rate pause helped keep the U.S. 2-year Treasury yield around 4.80%, while the 10-year Treasury yield edged up to 5.33% during European trading hours, after touching a 24-year high of 5.36% overnight.