Stock Market Declines Amid Rising Bond Yields and Trade Concerns

The S&P 500 Index ($SPX) (SPY) closed down -0.56% on Wednesday, while the Dow Jones Industrials Index ($DOWI) (DIA) fell -0.58%, and the Nasdaq 100 Index ($IUXX) (QQQ) decreased by -0.45%. June E-mini S&P futures (ESM25) are down -0.50%, and June E-mini Nasdaq futures (NQM25) are down -0.40%.

Market Dynamics

Stock indexes reversed course on Wednesday after an early advance, pressured by rising bond yields. The 10-year T-note yield increased by +4 basis points to 4.48%. Declines worsened in the afternoon as US semiconductor software companies dropped sharply. This followed a report from the Financial Times stating that President Trump advised US firms involved in semiconductor design to halt their sales to China.

Tariff Developments and Economic Data

Initially, stocks surged as the S&P 500 and Dow Jones reached one-week highs, and the Nasdaq 100 hit a three-month high. Market optimism stemmed from Trump’s weekend decision to postpone a 50% tariff deadline on US imports from the EU until July 9. Investors are now awaiting Nvidia’s earnings report, anticipated to reflect the trade war’s impact and trends in artificial intelligence.

In economic news, US MBA mortgage applications dipped by -1.2% for the week ending May 23. The purchase mortgage sub-index rose by +2.7%, but the refinancing sub-index fell by -7.1%. The average 30-year fixed mortgage rate also increased by +6 basis points, from 6.92% to 6.98%.

The Richmond Fed’s May manufacturing survey rose by +4 to -9, aligning with expectations. Minutes from the May 6-7 FOMC meeting indicated a preference among policymakers to maintain current interest rates, citing solid economic growth and a moderate monetary policy stance.

Current probabilities suggest a 2% chance of a -25 basis point rate cut at the next FOMC meeting on June 17-18. Market focus will remain on tariff news and potential trade agreements.

Upcoming Economic Reports

Nvidia’s quarterly earnings will be reported after Wednesday’s close. On Thursday, initial unemployment claims are expected to rise by +3,000 to 230,000. Q1 GDP is projected to remain unchanged at -0.3% quarter-over-quarter. Pending home sales for April are anticipated to decline by -1.0% month-over-month. Friday’s reports may show a +0.2% increase in April personal spending and a +0.3% rise in personal income. Core PCE price index estimates suggest a +0.1% rise month-over-month and +2.5% year-over-year. The University of Michigan’s May consumer sentiment index is projected to be revised up by +0.2 points to 51.0.

Q1 Earnings Season and Global Markets

As Q1 earnings season concludes, over 90% of S&P 500 companies have reported, with 77% exceeding expectations—the highest percentage since Q2 2024. Q1 earnings growth is at +13.1%, significantly higher than the +6.6% anticipated prior to the season. Projections for full-year 2025 corporate profits have been adjusted down to +9.4% from +12.5% as of January.

Overseas markets exhibited generally lower performance on Wednesday, with the Euro Stoxx 50 down -0.68%. In Asia, China’s Shanghai Composite lost -0.02%, while Japan’s Nikkei 225 remained unchanged despite reaching a two-week high.

Interest Rates and Economic Indicators

June 10-year T-notes (ZNM25) closed down -9.5 ticks with yields rising by +3.1 basis points to 4.475%. T-notes faced pressure from weaker European government bonds and supply concerns as the Treasury auctioned $28 billion of 2-year floating-rate notes and $70 billion of 5-year T-notes. Minutes from the May 6-7 FOMC meeting indicated a supportive stance for maintaining interest rates.

European bond yields rose, with the 10-year German bund increasing by +2.2 basis points to 2.554%, and the 10-year UK gilt rising +6.2 basis points to 4.727%. ECB’s April one-year CPI expectations rose by +3.1% year-on-year, exceeding projections of +2.8% and marking the highest rate in 14 months. Germany’s May unemployment increased by +34,000, surpassing expectations of +12,000, with an unchanged unemployment rate of 6.3%. The German April import price index fell by -1.7% month-over-month, greater than the forecasted decline of -1.4%.

US Stock Movers

US semiconductor software stocks plummeted after the news regarding Trump’s advice to US companies, with Cadence Design Systems (CDNS) dropping over -10%, leading the declines in the S&P 500 and Nasdaq 100. Synopsys (SNPS) fell more than -9%, while ANSYS Inc (ANSS) and Keysight Technologies (KEYS) saw declines of over -5% and -2% respectively.

Okta (OKTA) fell more than -15% after reporting Q2 expectations below consensus. AO Smith (AOS) and Galaxy Digital (GLXY) also suffered losses, dropping over -6% following significant announcements.

Homebuilding stocks faced downward pressure due to higher T-note yields. Companies like DR Horton (DHI) and ​​Toll Brothers (TOL) fell over -3%. Healthcare stocks rose on good news from Elevance Health, with CVS Health (CVS) and UnitedHealth Group (UNH) gaining over +1%.

Fair Isaac (FICO) surged, gaining over +7% after an upgrade from Baird. Box Inc (BOX) rose more than +17% after raising its revenue forecast.

Abercrombie & Fitch (ANF) increased by over +15% due to strong Q1 sales exceeding expectations. Vail Resorts (MTN) also rose more than +9%, while Noble Corp (NE) saw more than +1% increase after an upgrade from JPMorgan.

Upcoming Earnings Reports

Upcoming earnings reports include companies like Bath & Body Works Inc (BBWI), Best Buy Co Inc (BBY), and Costco Wholesale Corp (COST).

On the date of publication, Rich Asplund did not have positions in any of the securities mentioned in this article. All information is for informational purposes only. For more details, please refer to the Barchart Disclosure Policy.

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.