Stocks Slip Before the Open as Bond Yields Climb on U.S. Debt Fears, More Retail Earnings on Tap

June S&P 500 E-Mini futures (ESM25) are down -0.70%, and June Nasdaq 100 E-Mini futures (NQM25) are down -0.67% this morning as Treasury yields continue to rise on worries about U.S. government debt while U.S. President Donald Trump pushes to advance his tax bill.

Treasury yields marched higher on Wednesday as investors closely watched negotiations over the budget bill and federal deficit, a particularly contentious topic following Moody’s downgrade of the U.S. credit rating. Danske Bank analysts stated that long-end yields may rise further due to the fiscal challenges facing the U.S.

Adding to the negative sentiment, CNN reported that new U.S. intelligence indicated Israel may be preparing for a potential strike on Iran’s nuclear facilities. Geopolitical tensions may add headwinds to the markets, which had recently stabilized following a month of volatility sparked by President Trump’s trade war.

In yesterday’s trading session, Wall Street’s major indexes closed in the red. The AES Corporation (AES) dropped over -4% after Jefferies downgraded the stock to Underperform from Hold with a price target of $9. Also, chip stocks retreated, with Marvell Technology (MRVL) and Advanced Micro Devices (AMD) falling more than -1%. In addition, Trip.com (TCOM) slumped more than -5% after the travel service provider posted weaker-than-expected Q1 revenue. On the bullish side, Moderna (MRNA) climbed over +6% and was the top percentage gainer on the S&P 500 after the U.S. FDA outlined a path forward for Covid shots that was seen as more favorable than anticipated.

“There is little question that the momentum in the equity market is quite strong. That said, the market is getting overbought near-term, so it could see a breather at any time. However, unless that breather turns out to be a serious reversal, a retest of those all-time highs soon is very possible,” said Matt Maley at Miller Tabak.

St. Louis Fed President Alberto Musalem stated on Tuesday that tariffs are likely to put pressure on the U.S. economy and soften the labor market. “Even after the de-escalation of May 12, [tariffs] seem likely to have a significant impact on the near-term economic outlook,” Musalem said. The St. Louis Fed chief reiterated his stance that, since tariffs are just as likely to cause temporary inflation as they are to spark more persistent inflation, the Fed should refrain from committing to rate cuts to support the economy until there is greater clarity on their actual impact. Also, San Francisco Fed President Mary Daly and Cleveland Fed President Beth Hammack emphasized that the central bank can remain patient and evaluate incoming data before making any policy changes as the economy faces elevated uncertainty. In addition, Atlanta Fed President Raphael Bostic said that uncertainty related to trade policy, foreign investor pullback from U.S. markets, and the potential for tax cuts could prompt the central bank to postpone interest rate cuts.

U.S. rate futures have priced in a 94.6% chance of no rate change and a 5.4% chance of a 25 basis point rate cut at the June FOMC meeting.

Meanwhile, Morgan Stanley boosted its rating on U.S. equities to “Overweight,” citing a global economy that continues to expand, albeit at a slower pace, despite ongoing policy uncertainty. The bank forecasts that the S&P 500 will climb to 6,500 by the second quarter of 2026.

In other news, International Monetary Fund First Deputy Managing Director Gita Gopinath stated that U.S. fiscal deficits are excessively large and the nation must address its “ever-increasing” debt burden, according to an interview published by the Financial Times on Wednesday.

Today, retailers such as TJX Companies (TJX), Lowe’s (LOW), and Target (TGT), as well as notable companies like Medtronic (MDT), Snowflake (SNOW), and Zoom Video (ZM), are slated to release their quarterly results. Investors will closely watch retail earnings for indications of consumer weakening amid reports of waning sentiment and worries that tariffs could push prices higher.

Also, market participants will be looking toward speeches from Richmond Fed President Tom Barkin and Fed Governor Michelle Bowman.

On the economic data front, investors will focus on U.S. Crude Oil Inventories data, which is set to be released in a couple of hours. Economists expect this figure to be -0.900M, compared to last week’s value of 3.454M.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.537%, up +1.25%.

The Euro Stoxx 50 Index is down -0.27% this morning, pulling back from a 2-month high as investors digest hotter-than-expected U.K. inflation data and a warning from the European Central Bank. Automobile and retail stocks led the declines on Wednesday. Data from the Office for National Statistics released on Wednesday showed that U.K. inflation climbed further above the Bank of England’s target in April, as firms passed on higher payroll taxes and utility costs to consumers, an anticipated move that will still reinforce the central bank’s cautious stance. Meanwhile, the European Central Bank cautioned on Wednesday, in its semi-annual Financial Stability Review, that upbeat credit and equity markets seem “out of sync” with a global landscape dominated by geopolitical and trade uncertainty. The ECB stated that investors may be underestimating the risk of the economy underperforming expectations, trade tensions intensifying, or anticipated monetary policy easing not coming to fruition. In other news, the German Council of Economic Experts lowered its economic forecast for Germany on Wednesday, now projecting Europe’s largest economy to stagnate this year amid what it describes as a “pronounced phase of weakness.” In corporate news, JD Sports Fashion Plc (JD-.LN) slumped over -6% after the British sportswear retailer reported a 2% drop in Q1 underlying sales.

U.K.’s CPI and U.K.’s Core CPI data were released today.

U.K. April CPI has been reported at +1.2% m/m and +3.5% y/y, stronger than expectations of +1.1% m/m and +3.3% y/y.

U.K. April Core CPI arrived at +1.4% m/m and +3.8% y/y, stronger than expectations of +1.2% m/m and +3.6% y/y.

Asian stock markets today settled mixed. China’s Shanghai Composite Index (SHCOMP) closed up +0.21%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.61%.

China’s Shanghai Composite Index ended higher today on optimism that the country can withstand the effects of the trade war and maintain its economic momentum. Mining stocks climbed on Wednesday after gold prices reached their highest levels in a week. Battery-related stocks also advanced after electric vehicle battery giant CATL made a strong debut in Hong Kong. Sentiment remained upbeat after China cut benchmark lending rates for the first time since October on Tuesday, while major state-owned banks reduced deposit rates as authorities move to shield the economy from the effects of the China-U.S. trade war. People’s Bank of China Governor Pan Gongsheng also pledged to implement an “appropriately loose” monetary policy to support critical areas such as technological innovation, consumption, private small businesses, and the stabilization of foreign trade. Meanwhile, Morgan Stanley on Wednesday lifted its China economic growth forecast for 2025 to 4.5% from 4.2% and for 2026 to 4.2% from 4%. The bank also said it anticipates China’s central bank will reduce the policy rate by 15 to 20 basis points and lower the reserve requirement ratio by 50 basis points by year-end. In other news, China’s commerce ministry stated that the country may pursue legal action in response to efforts to implement U.S. restrictions on the use of advanced Chinese chips. In corporate news, BYD rose over +1% after Citi raised its price target on the stock to 669 yuan from 630 yuan.

Japan’s Nikkei 225 Stock Index gave up earlier gains and ended lower today as investors digested mixed trade data from the country, while a stronger yen further dampened sentiment. The yen strengthened on safe-haven demand after CNN reported that Israel is preparing for a possible strike on Iranian nuclear facilities, weighing on export-oriented stocks. Electronics and insurance stocks led the declines on Wednesday. Data from the Ministry of Finance released on Wednesday showed that Japan’s export growth slowed in April, with shipments to the U.S. declining for the first time in four months as the impact of higher tariffs began to take hold. Separately, a Reuters Tankan poll showed that Japanese manufacturers were less optimistic about business conditions in May than in April and expect sentiment to deteriorate over the next three months as shifting U.S. tariff actions dampen the outlook. Meanwhile, investors remain focused on the outcome of U.S. trade negotiations with Japan. The Nikkei newspaper reported that Japan’s top trade negotiator, Ryosei Akazawa, will travel to Washington on Friday for a third round of talks, though analysts noted that the chances of a breakthrough in reducing steep automobile tariffs remain low. In other news, the Bank of Japan said on Tuesday that some market participants called on the central bank to boost purchases of super-long bonds or halt tapering for that maturity following a surge in their yields. In corporate news, Tokio Marine Holdings slid over -2% after projecting a 12% decline in full-year profit. At the same time, Mizuho rose more than +2% after unveiling a plan to reduce its cross-shareholdings. The Nikkei Volatility Index, which takes into account the implied volatility of Nikkei 225 options, closed down -2.81% to 23.53.

The Japanese April Trade Balance arrived at -115.8B yen, weaker than expectations of 227.1B yen.

The Japanese April Exports stood at +2.0% y/y, in line with expectations.

The Japanese April Imports came in at -2.2% y/y, stronger than expectations of -4.5% y/y.

Pre-Market U.S. Stock Movers

Wolfspeed (WOLF) plummeted about -55% in pre-market trading after the Wall Street Journal reported that the chip-component maker was preparing to file for bankruptcy in the coming weeks.

Palo Alto Networks (PANW) slid over -3% in pre-market trading after the cybersecurity firm issued in-line FQ4 revenue guidance.

Take-Two Interactive Software (TTWO) slumped more than -4% in pre-market trading after proposing an offering for $1 billion of common shares.

Keysight Technologies (KEYS) rose over +5% in pre-market trading after reporting stronger-than-expected FQ2 results and lifting its full-year revenue growth forecast to align with its 5% to 7% long-term target.

Toll Brothers (TOL) climbed more than +5% in pre-market trading after the home builder posted upbeat FQ2 results and maintained its full-year guidance for home sales.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Wednesday - May 21st

TJX (TJX), Lowe’s (LOW), Medtronic (MDT), Snowflake (SNOW), Target (TGT), Baidu (BIDU), Zoom Video (ZM), Xpeng (XPEV), Full Truck Alliance Co (YMM), Wix.Com Ltd (WIX), Urban Outfitters (URBN), VF (VFC), Dycom Industries (DY), BBVA Argentina (BBAR), Enersys (ENS), Weibo Corp (WB), Liveramp (RAMP), CMBTECH NV (CMBT), iQIYI (IQ), Golden Ocean (GOGL), Lexinfintech (LX), FLEX LNG (FLNG), American Superconductor (AMSC), Canada Goose (GOOS).