US Markets Decline Amid Rising Yields and Geopolitical Tensions

The S&P 500 Index ($SPX) (SPY) is down -0.50%, the Dow Jones Industrials Index ($DOWI) (DIA) decreased by -0.82%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.33%. June E-mini S&P futures (ESM25) fell by -0.43%, while June E-mini Nasdaq futures (NQM25) are down -0.22%.

Market Triggers: Trade Wars and Credit Rating Concerns

Stock indexes are declining today alongside the dollar. This trend stems from diminished interest in US assets among foreign investors, propelled by the ongoing trade war and the recent downgrade of the US credit rating by Moody’s. Additionally, rising bond yields are impacting stock prices, with the 10-year T-note yield up +5 basis points to 4.54%.

The Impact of US Debt and Tax Cuts

Bond yields are climbing amid concerns regarding increasing US deficits. House Republicans recently agreed to raise the SALT deduction from $10,000 to $40,000. If this tax cut is not offset by spending reductions, the Treasury may need to issue more debt, further pushing bond yields higher.

Geopolitical risks have escalated following reports from CNN indicating that Israeli forces may be preparing to strike Iranian nuclear facilities, adding additional anxiety to the stock markets.

Mortgage Application Trends

In housing news, US MBA mortgage applications fell -5.1% in the week ending May 16, with purchase and refinancing sub-indices declining by -5.2% and -5.0%, respectively. The average rate for a 30-year fixed mortgage increased to 6.92%, up from 6.85% the previous week.

Focus This Week: Tariffs and Economic Indicators

The markets will closely monitor tariff developments and new trade agreement announcements this week. G-7 finance ministers and central bank governors are convening in Braniff, Canada, from Tuesday to Thursday. Expectations for Thursday’s reports include a +1,000 rise in weekly initial unemployment claims to 230,000 and a decline of -0.3 in the May S&P manufacturing PMI to 49.9. Existing home sales are forecasted to increase by +2.0% month-over-month to 4.10 million, while new home sales are anticipated to drop -4.7% month-over-month to 690,000.

FOMC Rate Cut Prospects

Currently, the markets are pricing in a 2% likelihood of a -25 basis point rate cut during the upcoming FOMC meeting on June 17-18.

Quarterly Earnings Overview

The Q1 earnings reporting season is wrapping up, with nearly 90% of S&P 500 companies having reported. About 77% exceeded estimates, marking the highest rate since Q2 2024. Earnings growth for Q1 stands at +13.1%, surpassing earlier expectations of +6.6%. Furthermore, full-year corporate profits for 2025 are projected to rise by +9.4%, down from the earlier forecast of +12.5% made in January.

Global Market Performance

International markets are mixed today. The Euro Stoxx 50 declined by -0.25%. China’s Shanghai Composite rose by +0.21%, while Japan’s Nikkei 225 fell to a 1.5-week low, closing down -0.61%.

Interest Rates Update

June 10-year T-notes (ZNM25) are down -12 ticks, with the yield climbing by +5.2 basis points to 4.539%. T-notes face pressure from a drop in UK gilt prices and increased supply as the Treasury plans to auction $16 billion in 20-year T-bonds later today. There are also concerns that unfunded tax cuts in President Trump’s budget could require the Treasury to increase debt sales to manage the growing deficit.

In European debt markets, 10-year German bund yields rose +4.4 basis points to 2.649%, while UK gilt yields reached a 6-week high of 4.776%, increasing by +6.4 basis points.

Economic Risks Identified by the ECB

The European Central Bank, in its bi-annual Financial Stability Review, mentioned the “atypical shifts” away from traditional safe-haven assets like the dollar and US Treasuries may suggest a significant change in the financial landscape, with potential implications for global capital flows.

Inflation Measures in the UK

UK inflation data released shows April CPI increased by +3.5% year-over-year, surpassing expectations of +3.3%. Core CPI also exceeded forecasts, rising +3.8% year-over-year compared to the expected +3.6%.

Swaps indicate a 93% probability of a -25 basis point cut by the ECB during the June 5 policy meeting.

US Stock Movers

Palo Alto Networks (PANW) leads losses among S&P 500 companies, down over -6% after its Q4 next-gen security ARR projection fell short of consensus. Target Corp (TGT) also fell more than -6% after reporting Q1 comparable sales down -3.8% and revising its 2026 adjusted EPS forecast downward.

VF Corp (VFC) dropped by more than -16% following the prediction of a larger than anticipated Q1 adjusted operating loss. UnitedHealth Group (UNH) fell over -4% amid reports suggesting potential ethical concerns.

Equifax (EFX) and TransUnion (TRU) share prices declined by more than -4% due to scrutiny over credit reporting costs. Take-Two Interactive Software (TTWO) is down more than -3% after announcing a public offering of shares.

Conversely, Alphabet (GOOGL) gained over +2% after an AI event reduced competitive apprehensions. Keysight Technologies (KEYS) is up more than +5% after exceeding Q2 revenue expectations. Dycom Industries (DY) rose over +15% following strong Q1 contract revenue results, and XP Inc (XP) gained over +5% after reporting better than expected Q1 net income.

Upcoming Earnings Reports

Scheduled 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 hold positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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