Stocks Fall on Rising Bond Yields and Concern About Foreign Investment Interest

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.39%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.27%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.37%.  June E-mini S&P futures (ESM25) are down -0.44%, and June E-mini Nasdaq futures (NQM25) are down -0.45%. 

Stock indexes retreated as the market fretted about higher bond yields and the reduced attractiveness of the US to foreign investors with the ongoing trade war and last Friday’s Moody’s downgrade of the US credit rating. 

The 10-year T-note yield Tuesday rose +2 bp to 4.48%, undercutting stocks, on concern the Fed will take a wait-and-see approach before cutting interest rates.  On Monday, Fed Vice Chair Jefferson and New York Fed President Williams said that they want to wait for more information before deciding on the future of interest rates and that it "may take months" to better understand tariffs and other policies from the Trump administration and the outlook for the economy. 

Stock losses accelerated Tuesday afternoon on Fed comments. St. Louis Fed President Musalem said, "On balance, tariffs are likely to dampen economic activity and lead to some further softening of the labor market."  Also, Atlanta Fed President Bostic said the Fed needs "to wait and see" where the economy is heading before acting on interest rates and uncertainty could extend the timeline for a policy move.

The markets this week will focus on any tariff news or signing of any new trade deals.  Starting Tuesday, G-7 finance ministers and central bank governors will meet in Braniff, Canada, through Thursday.  On Thursday, weekly initial unemployment claims are expected to climb +1,000 to 230,00. Also, the May S&P manufacturing PMI is expected to fall -0.3 to 49.9.  Finally, on Thursday, Apr existing home sales are expected to climb +2.0% m/m to 4.10 million.  On Friday, Apr new home sales are expected to fall -4.7% m/m to 690,000.

The markets are discounting the chances at 5% for a -25 bp rate cut at the next FOMC meeting on June 17-18.

Q1 earnings reporting season is winding down.  So far, over 85% of companies in the S&P 500 have reported quarterly results, and 77% have beaten estimates, the highest since Q2 of 2024.  Earnings growth in Q1 is running at +13.1%, compared with just +6.6% expected before the start of the season.  Full-year 2025 corporate profits for the S&P 500 are seen rising +9.4%, down from the forecast of +12.5% in early January.  

Overseas stock markets on Tuesday settled higher.  The Euro Stoxx 50 closed up +0.51%.  China's Shanghai Composite closed up +0.38%.  Japan's Nikkei Stock 225 closed up +0.08%.

Interest Rates

June 10-year T-notes (ZNM25) on Tuesday closed up +2 ticks.  The 10-year T-note yield rose +1.6 bp to 4.479%.  June T-notes Tuesday recovered from early losses and settled slightly higher after comments from St. Louis Fed President Musalem sparked short covering when he said tariffs would likely slow the economy and weaken the labor market. 

T-notes on Tuesday initially moved lower on negative carryover from weakness in European government bonds.  T-notes were also pressured by negative carryover from last Friday when Moody's Ratings downgraded the US government's credit rating from Aaa to Aa1, which may prompt investors to demand higher yields to hold Treasuries.    

European government bond yields on Tuesday moved higher.  The 10-year German bund yield rebounded from a 1-week low of 2.555% and finished up +1.7 bp at 2.606%.  The 10-year UK gilt yield rose +3.9 bp to 4.703%.

German Apr PPI fell -0.9% y/y, weaker than expectations of -0.6% y/y and the biggest decline in 6 months.

ECB Governing Council member Knot said he "can't rule out" another ECB interest rate cut in June, but it's "too early" to make decisions without seeing fresh quarterly forecasts.

ECB Governing Council member Wunsch said the Eurozone economy may need interest rates at "mildly supportive" levels to ensure inflation doesn't fall below target after a series of shocks.

Swaps are discounting the chances at 95% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

US Stock Movers

Cruise line and casino stocks were under pressure Tuesday. Norwegian Cruise Line Holdings (NCLH) and Las Vegas Sands (LVS) closed down more than -3%.  Also, Carnival (CCL), MGM Resorts International (MGM), and Wynn Resorts (WYNN) closed down more than -2%.  In addition, Royal Caribbean Cruises Ltd (RCL) and Caesars Entertainment (CZR) closed down more than -1%. 

Chip stocks retreated Tuesday and weighed on the broader market. Marvell Technology (MRVL) closed down more than -2%.  Also, Nvidia (NVDA), Advanced Micro Devices (AMD), and ARM Holdings Plc (ARM) closed down more than -1%.  In addition, Micron Technology (MU) closed down -0.70%, and Applied Materials (AMAT) closed down -0.52%%. 

Airbnb (ABNB) closed down more than -3% to lead losers in the Nasdaq 100 after the New York Times reported that the Spanish government ordered the company to remove almost 66,000 listings from its platform. 

AES Corp (AES) closed down more than -4% after Jeffries downgraded the stock to underperform from hold with a price target of $9.

Trip.com (TCOM) closed down more than -5% after reporting a Q1 gross profit of 11.13 billion yuan, below the consensus of 11.17 billion yuan.

Viking Holdings Ltd (VIK) closed down more than -5% after reporting a Q1 net loss of -$105.5 million, -79% y/y. 

Ryman Hospitality Properties (RHP) closed down more than -2% after announcing an underwritten registered public offering of 2.3 million shares of its common stock.

Nutanix (NTNX) is down more than -2% after Raymond James downgraded the stock to market perform from outperform.

Amer Sports (AS) closed up more than +18% after reporting Q1 revenue of $1.47 billion, better than the consensus of $1.38 billion, and raised its full-year revenue forecast to up +15% to +17% from a previous estimate of +135 to +15%.

Moderna (MRNA) closed up more than +6% to lead gainers in the S&P 500 after the FDA outlined an approach on the path forward for Covid vaccination shots that is viewed as better than expected.

Pegasystems Inc (PEGA) closed up more than +4% after S&P Dow Jones Indices announced the company will replace Nordstrom in the S&P Midcap 400 Index before the start of trading on May 22. 

Dollar Tree (DLTR) closed up more than +4% after BWG Global upgraded the stock to positive from mixed.

Pfizer (PFE) closed up more than +2% after entering into a license agreement with 3SBio to develop and manufacture a bispecific antibody cancer drug in China. 

Deckers Outdoor Corp (DECK) closed up more than +1% after TD Cowen raised its price target on the stock to $175 from $150.

Air Lease (AL) closed up more than +1% after Citigroup upgraded the stock to buy from neutral with a price target of $68.

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).