U.S. stocks were lower, but off the day’s lows, Thursday afternoon as yields on government bonds extended their decline with investors shying away from bets on a blistering economic recovery and rising inflation.

What are major indexes doing?

The Dow Jones Industrial Average
DJIA,
-0.80%

was down 263.02 points, or 0.75%, to 34,365.94, after dropping more than 500 points at its session low.

The S&P 500
SPX,
-0.71%

declined 33.61 points, or 0.77%, to 4,324.11.

The Nasdaq Composite
COMP,
-0.42%

fell 95.75 points, or 0.65%, to 14,569.31.

On Wednesday, stocks edged higher, with the S&P 500 rising 0.3% and the Nasdaq Composite eking out a gain of just over 1 point — enough to lift both indexes to record finishes. The Dow rose 104.42 points, or 0.3%, to end at 34,681.79.

What’s driving the market?

U.S. stock benchmarks were in retreat after the latest in a string of all-time highs, with a weaker tone Thursday across global equities attributed in part to worries that the recovery from the COVID-19 pandemic could be slowed by persistent supply bottlenecks and the spread of the delta variant of the coronavirus that causes COVID-19.

The price action across markets reflects a “tug of war between fears of inflation and fears of growth peaking,” said Art Hogan, chief market strategist at B. Riley-National, in a phone interview. At present, fears of an inflation surge “are being replaced with the fear that this is as good as it’s going to get” for growth, he said.

In the end, such fears are likely to prove unfounded as bottlenecks resolve themselves and as corporate earnings reports begin to roll in next week, Hogan said.

Earlier Thursday, the U.S. Labor Department said initial jobless claims rose to 373,000 from an upwardly revised 371,000 in the seven days ended July 3. Economists had looked for claims to drop to 350,000.

A sharp drop in the yield on the 10-year Treasury note
TMUBMUSD10Y,
1.297%

remains front and center though. The 10-year yield was down 2.9 basis points at 1.29% after dipping below 1.25%, its lowest since February. The fall in long-dated yields has significantly flattened the yield curve, a plot of yields across Treasury maturities.

The curve flattening “has already led market participants to sell cyclical stocks in favor of large-cap growth stocks, essentially reversing the rotation into value stocks experienced since September,” said Steven Ricchiuto, chief U.S. economist at Mizuho Securities, in a note.

Analysts have scrambled to explain the Treasury rally, which has seen the 10-year yield tumble from above 1.40% at the beginning of the month, with explanations ranging from a loss of faith in the economic recovery, to global appetite for yield, to technical factors that have seen a flush out of speculative bets on rising yields.

Read: Why is the 10-year Treasury yield plunging to the lowest since February? Government debt is Wall Street’s new meme asset, says investor

Technology shares, however, weren’t benefiting on Thursday as yields fell as they often do. That was likely a reflection of the idea that tech-related shares had become overstretched in recent sessions, leaving them vulnerable to profit-taking amid a broad market selloff, Hogan said.

Analysts said concerns over the delta variant of the coronavirus were also weighing on sentiment. Japan on Thursday was set to place Tokyo under a state of emergency that would continue through the Olympics, underlining fears a COVID-19 surge will multiply during the Games.

But others struck a more sanguine note that mirrored the midday uptick.

“Although the cyclical rotation has paused for now, we believe that there is still room for it as there is more reopening to happen,” Esty Dwek, head of global market strategy at Natixis Investment Managers Solutions wrote in a note.

On Wednesday minutes of the Federal Reserve’s June policy meeting confirmed that policy makers began discussing when it would be appropriate to consider the slowdown of monthly bond purchases. It also showed that policy makers largely thought conditions needed to warrant a tapering had yet to be achieved.

Which companies are in focus?

Electric car maker Tesla Inc.
TSLA,
+0.79%

on Thursday unveiled the Standard Range (SR) Model Y on its China website, with a starting price of ¥276,000 ($42,589), which takes into account government subsidies and reduces it from ¥291,840. Delivery of the autos will begin in August, according to the website. Tesla shares were down 1%.

Attorneys general in 36 states and the District of Columbia sued Alphabet Inc.’s
GOOG,
-0.21%

GOOGL,
-0.79%

Google late Wednesday, claiming violations of antitrust law. Shares were down more than 1%.

Shares of WD-40 Co.
WDFC,
+1.53%

rose 2.2% after the maintenance and cleaning products company delivered results and an outlook late Wednesday that beat Wall Street expectations.

Semiconductor stocks fell on concerns about the speed of the global economic recovery. Micron
MU,
-1.74%
,
Nvidia
NVDA,
-1.67%
,
Qualcomm
QCOM,
-1.03%
,
Intel
INTC,
-1.11%

 were all off by more than 2%.

Shares in AMC Entertainment
AMC,
+6.77%

entered the afternoon soaring after retail traders on Reddit banded together after the stock fell more than 20% this week. AMC stock was up 7.2% on the day.

What are other markets doing?

The ICE U.S. Dollar Index
DXY,
-0.24%
,
a measure of the currency against six major rivals, was down 0.3%.

Oil futures erased early weakness to tick higher, with the U.S. benchmark
CL00,
+0.55%

up 0.1%. Gold
GC00,
-0.17%

gave up a modest early gain, falling 0.2%.

European equities fell sharply, with the Stoxx Europe 600
SXXP,
-1.72%

and London’s FTSE 100
UKX,
-1.68%

both down 1.8%.

In Asia, the Shanghai Composite
SHCOMP,
-0.79%

fell 0.8%, Hong Kong’s Hang Seng Index
HSI,
-2.89%

shed 2.9% and Japan’s Nikkei 225
NIK,
-0.88%

dropped 0.9%.

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