Stock Markets Dip Amid Rising Bond Yields and Trade Concerns
The S&P 500 Index ($SPX) (SPY) closed down -0.39% on Tuesday, while the Dow Jones Industrials Index ($DOWI) (DIA) fell -0.27%, and the Nasdaq 100 Index ($IUXX) (QQQ) declined -0.37%. Additionally, June E-mini S&P futures (ESM25) decreased -0.44%, and June E-mini Nasdaq futures (NQM25) dropped -0.45%.
Market indexes retreated due to concerns over increasing bond yields and a perceived decline in the US’s attractiveness to foreign investors. These worries were exacerbated by the ongoing trade war and Moody’s downgrade of the US credit rating last Friday.
The yield on the 10-year T-note rose by 2 basis points to 4.48%, impacting stock prices as investors speculated that the Federal Reserve might adopt a wait-and-see approach before making interest rate cuts. On Monday, Fed Vice Chair Jeffrey and New York Fed President Williams indicated that more information is needed on the economic outlook, with comments suggesting it could “take months” to fully assess tariffs and policies from the Trump administration.
Comments from St. Louis Fed President Musalem amplified stock losses later in the day. He noted that “tariffs are likely to dampen economic activity and lead to further softening of the labor market.” Similarly, Atlanta Fed President Bostic stated the need to “wait and see” how the economy progresses before acting on interest rates, emphasizing that uncertainty could prolong any policy adjustments.
Upcoming Economic Focus
This week, the markets are especially attentive to developments regarding tariffs and potential new trade agreements. Starting Tuesday, G-7 finance ministers and central bank governors will convene in Braniff, Canada, through Thursday. On the economic data front, weekly initial unemployment claims are projected to rise by 1,000 to 230,000. Furthermore, the May S&P manufacturing PMI is expected to dip by 0.3 to 49.9, while April existing home sales are forecasted to increase by 2.0% month-over-month to 4.10 million. Conversely, May new home sales are anticipated to decline by 4.7% month-over-month to 690,000.
The markets currently assign a 5% probability for a -25 basis point rate cut at the next FOMC meeting scheduled for June 17-18.
Q1 Earnings Summary
The Q1 earnings season is nearly complete, with over 85% of S&P 500 companies reporting their results. Of these, 77% exceeded estimates, marking the strongest performance since Q2 2024. Earnings growth for Q1 is projected at +13.1%, significantly ahead of the +6.6% expected before the season began. Meanwhile, full-year 2025 corporate profits for the S&P 500 are expected to rise by +9.4%, a reduction from the +12.5% forecast made in early January.
International Markets
International stock markets saw gains on Tuesday. The Euro Stoxx 50 rose by +0.51%, China’s Shanghai Composite increased by +0.38%, and Japan’s Nikkei Stock 225 edged up by +0.08%.
Interest Rates
June 10-year T-notes (ZNM25) closed up by +2 ticks, with the yield increasing by 1.6 basis points to 4.479%. After initial losses, T-notes improved slightly in value following comments from St. Louis Fed President Musalem, who emphasized the potential economic slowdown due to tariffs.
Initially, T-notes faced downward pressure from weakness in European government bonds. They were further affected by Moody’s recent downgrade of the US government’s credit rating from Aaa to Aa1, which might lead investors to seek higher yields on Treasuries.
In Europe, bond yields also increased. The 10-year German bund yield rebounded from a one-week low of 2.555% and finished up +1.7 basis points at 2.606%. The 10-year UK gilt yield rose by +3.9 basis points to 4.703%.
Corporate Performance
US stocks in specific sectors faced pressure on Tuesday. Norwegian Cruise Line Holdings (NCLH) and Las Vegas Sands (LVS) both closed down by over -3%. Other stocks such as Carnival (CCL), MGM Resorts International (MGM), and Wynn Resorts (WYNN) declined by more than -2%. Royal Caribbean Cruises Ltd (RCL) and Caesars Entertainment (CZR) fell by over -1%.
Chip stocks also contributed to market declines. Marvell Technology (MRVL) lost more than -2%, while Nvidia (NVDA), Advanced Micro Devices (AMD), and ARM Holdings Plc (ARM) each closed down by over -1%. Additionally, Micron Technology (MU) and Applied Materials (AMAT) declined by -0.70% and -0.52%, respectively.
Airbnb (ABNB) led the Nasdaq 100’s losses with a drop of over -3%, attributed to reports indicating that the Spanish government mandated the removal of approximately 66,000 listings from its platform.
AES Corp (AES) fell by more than -4% following a downgrade by Jeffries from hold to underperform, with a price target set at $9. Trip.com (TCOM) dropped over -5% after reporting a Q1 gross profit of 11.13 billion yuan, falling short of the consensus of 11.17 billion yuan. Viking Holdings Ltd (VIK) experienced a similar fall, reporting a Q1 net loss of -$105.5 million, representing a 79% year-over-year decline.
Ryman Hospitality Properties (RHP) closed down more than -2% after announcing a registered public offering of 2.3 million shares. Nutanix (NTNX) also saw a decline of over -2% after Raymond James lowered its rating from outperform to market perform.
Conversely, American Sports (AS) surged more than +18% following a Q1 revenue report of $1.47 billion, surpassing the consensus estimate of $1.38 billion, coupled with a raised full-year revenue outlook to +15% to +17% from the previous estimate of +135% to +15%.
Moderna (MRNA) led gainers in the S&P 500 with a rise of over +6%, following FDA guidance that provided a favorable path for future Covid vaccination shots. Pegasystems Inc (PEGA) also increased by more than +4% after being announced as a replacement for Nordstrom in the S&P Midcap 400 Index prior to trading on May 22.
Dollar Tree (DLTR) gained over +4% after BWG Global upgraded its rating from mixed to positive. Pfizer (PFE) rose by over +2% after entering a licensing agreement with 3SBio for the development of a bispecific antibody cancer drug in China. Deckers Outdoor Corp (DECK) saw an increase of more than +1% following TD Cowen’s price target revision from $150 to $175. Air Lease (AL) closed up +1% after Citigroup upgraded its rating from neutral to buy, setting a price target of $68.
Earnings Reports (5/21/2025)
Key upcoming earnings reports include Lowe’s Cos Inc (LOW), Medtronic PLC (MDT), Snowflake Inc (SNOW), Target Corp (TGT), TJX Cos Inc/The (TJX), VF Corp (VFC), and Zoom Communications Inc (ZM).
On the date of publication, Rich Asplund did not have any positions, either directly or indirectly, in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
The views expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.
