Stock Markets Decline Amid Rising Yields and Geopolitical Risks

The S&P 500 Index ($SPX) (SPY) is down -0.51%, while the Dow Jones Industrials Index ($DOWI) (DIA) has decreased by -0.91%. The Nasdaq 100 Index ($IUXX) (QQQ) is also down -0.25%. June E-mini S&P futures (ESM25) have fallen by -0.60%, and June E-mini Nasdaq futures (NQM25) are down -0.28%.

Stock indexes and the dollar are both sliding, driven by waning interest from foreign investors amid an ongoing trade war and the recent Moody’s downgrade of the U.S. credit rating. Additionally, stocks are affected by a +4 basis point increase in the 10-year T-note yield, now at 4.53%.

Concerns about rising U.S. deficits are pushing T-note yields higher. Early today, House Republicans reached an agreement to increase the SALT deduction to $40,000 per year from its previous limit of $10,000. If spending cuts do not match these tax deductions, the Treasury may need to sell more debt securities to manage the escalating deficit, potentially driving bond yields even higher.

Geopolitical tensions are further pressuring stocks. Reports from CNN indicate that new U.S. intelligence suggests Israel may be preparing an attack on Iranian nuclear facilities.

In economic news, U.S. mortgage applications fell by -5.1% for the week ending May 16, with the purchase mortgage sub-index dropping -5.2% and refinancing applications down -5.0%. The average 30-year fixed mortgage rate rose to 6.92%, up +6 basis points from the prior week.

Upcoming Market Focus

This week, investors are closely watching for updates on tariffs and potential trade agreements. G-7 finance ministers and central bank governors are scheduled to meet Tuesday through Thursday in Braniff, Canada. On Thursday, initial unemployment claims are anticipated to rise by +1,000 to 230,000. The May S&P manufacturing PMI is expected to fall -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, April new home sales are projected to decline by -4.7% month-over-month to 690,000.

Currently, markets are forecasting only a 6% chance of a -25 basis point rate cut at the upcoming Federal Open Market Committee (FOMC) meeting on June 17-18.

The Q1 earnings reporting season is nearing completion, with nearly 90% of S&P 500 companies having reported results. Of those, 77% surpassed earnings estimates, marking the highest performance since Q2 2024. Earnings growth for Q1 stands at +13.1%, surpassing the earlier expectation of +6.6%. For full-year 2025, corporate profits for the S&P 500 are projected to increase by +9.4%, down from the initial forecast of +12.5% in January.

Global Market Update

International stock markets showed mixed results today. The Euro Stoxx 50 is down -0.04%, while China’s Shanghai Composite closed up +0.21%. Japan’s Nikkei Stock 225 fell to a 1.5-week low, ending down -0.61%.

Interest Rates Overview

June 10-year T-notes (ZNM25) have dropped -12 ticks, with the yield rising by +4.2 basis points to 4.529%. The T-note market faced pressure from a decline in 10-year UK gilt prices and significant supply pressures ahead of a $16 billion auction of 20-year T-bonds later today. Concerns regarding deficit financing due to unfunded tax cuts in President Trump’s budget have added to selling pressure on T-notes.

European government bond yields have also increased, with the 10-year German bund yield rising +3.2 basis points to 2.637%. The 10-year UK gilt yield reached a 6-week high of 4.776%, up +4.7 basis points to 4.750%.

The European Central Bank’s recent Financial Stability Review highlighted “atypical shifts” away from traditional safe havens like the dollar and U.S. Treasuries, suggesting a potential “fundamental regime change.” This could lead to broader shifts in capital flows, posing significant implications for the global financial system.

In the UK, April CPI increased by +3.5% year-over-year, exceeding expectations of +3.3%, marking the fastest annual rise in 15 months. Meanwhile, April core CPI rose by +3.8% year-over-year, beating anticipated growth of +3.6% and representing the highest rate in a year.

Swaps are implying a 93% chance of a -25 basis point rate cut by the ECB at its June 5 policy meeting.

Stock Movements

Palo Alto Networks (PANW) leads declines in the Nasdaq 100 with a drop of over -6% after projecting Q4 next-generation security ARR at $5.52 billion to $5.57 billion, slightly below consensus. VF Corp (VFC) fell more than -12% after forecasting a Q1 adjusted operating loss ranging from -$110 million to -$125 million, exceeding the expected loss of -$73.1 million.

In the Dow, UnitedHealth Group (UNH) is down over -5% amidst a report suggesting the company made undisclosed payments to nursing homes to reduce hospital transfers for patients. Target Corp (TGT) declined by more than -4% after reporting Q1 comparable sales down -3.8%, below the expected -1.94%. Additionally, Target revised its 2026 adjusted EPS forecast down to $7.00-$9.00 from $8.80-$9.80, beneath consensus expectations.

Moderna (MRNA) also faced a drop of over -4% after voluntarily withdrawing its application for a combined Covid and flu vaccine for those aged 50 and older. Credit reporting companies, including Equifax (EFX) and TransUnion (TRU), are down more than -4% following scrutiny regarding credit report costs by FHFA Director Pulte. Take-Two Interactive Software (TTWO) fell over -3% after announcing an underwritten public offering of 4.75 million shares at a price of $225 per share.

Conversely, Alphabet (GOOGL) increased by more than +3% after analysts assessed that an AI event eased competitive concerns. Keysight Technologies (KEYS) rose over +4% as it reported Q2 revenue of $1.31 billion, exceeding the consensus of $1.28 billion. The company also projects Q3 revenue between $1.31 billion and $1.33 billion, higher than expected. Dycom Industries (DY) surged more than +16% following a Q1 contract revenue report of $1.26 billion, outperforming the consensus of $1.20 billion. XP Inc (XP) gained over +1% after announcing a Q1 adjusted net income of 1.24 billion Brazilian real, which surpassed the consensus of 1.18 billion real.

Upcoming Earnings Reports (5/21/2025)

Lowe’s Cos Inc (LOW), Medtronic PLC (MDT), Snowflake Inc (SNOW), Target Corp (TGT), TJX Cos Inc/The (TJX), VF Corp (VFC), 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 is intended for informational purposes only. For more details, please view the Barchart Disclosure Policy
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