Stocks Fall as Fiscal Worries Boost Bond Yields

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

Stock indexes are sliding today along with the dollar due to the reduced attractiveness of US assets to foreign investors with the ongoing trade war and last Friday’s Moody downgrade of the US credit rating.  Stocks are also being undercut by the +4 bp rise in the 10-year T-note yield to 4.53%.

T-note yields are climbing today due to concerns about rising US deficits.  House Republicans reached an agreement early this morning to raise the SALT deduction to $40,000 a year from the current $10,000 a year.  If spending cuts don’t pay for the tax cuts, the Treasury will be forced to finance the soaring deficit by boosting the sales of US debt securities, which could push bond yields even higher. 

Escalation of geopolitical risks is another negative factor for stocks after CNN reported that new US intelligence suggests Israel is preparing for a potential strike on Iranian nuclear facilities.

US MBA mortgage applications fell -5.1% in the week ended May 16, with the purchase mortgage sub-index down -5.2% and the refinancing sub-index down -5.0%.  The average 30-year fixed rate mortgage rose +6 bp to 6.92% from 6.85% in the prior week.

This week, the markets will focus on any tariff news or announcements of new trade deals.  G-7 finance ministers and central bank governors are meeting this week on Tuesday through Thursday in Braniff, Canada.  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 6% for a -25 bp rate cut at the next FOMC meeting on June 17-18.

Q1 earnings reporting season is winding down.  So far, almost 90% 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 today are mixed.  The Euro Stoxx 50 is down -0.04%.  China’s Shanghai Composite closed up +0.21%.  Japan’s Nikkei Stock 225 fell to a 1-1/2 week low and closed down -0.61%.

Interest Rates

June 10-year T-notes (ZNM25) today are down -12 ticks.  The 10-year T-note yield is up +4.2 bp to 4.529%.  June T-notes are under pressure today on negative carryover from a slide in 10-year UK gilt prices to a 6-week low after UK Apr CPI rose more than expected.  Also, supply pressures are undercutting T-note prices as the Treasury will auction $16 billion of 20-year T-bonds later today.  T-notes were also pressured by concern that unfunded tax cuts in President Trump’s budget would force the Treasury to increase the sales of Treasury debt securities to finance the burgeoning deficit. 

European government bond yields today are moving higher.  The 10-year German bund yield is up +3.2 bp at 2.637%. The 10-year UK gilt yield jumped to a 6-week high of 4.776% and is up +4.7 bp to 4.750%.

The ECB, in its bi-annual Financial Stability Review, said the “atypical shifts” away from traditional havens like the dollar and US Treasuries after April’s trade announcements may point to a “fundamental regime change.” That raises the danger of “broader shifts in capital flows that could have potentially far-reaching consequences for the global financial system.”

UK Apr CPI rose +3.5% y/y, stronger than expectations of +3.3% y/y and the fastest pace of increase in 15 months.  Also, Apr core CPI rose +3.8% y/y, stronger than expectations of +3.6% y/y and the fastest pace of increase in a year.

Swaps are discounting the chances at 93% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

US Stock Movers

Palo Alto Networks (PANW) is down more than -6% to lead losers in the Nasdaq 100 after forecasting Q4 next-generation security ARR of $5.52 billion to $5.57 billion, the midpoint below the consensus of $5.57 billion. 

VF Corp (VFC) is down more than -12% after forecasting a Q1 adjusted operating loss from continuing operations of -$110 million to -$125 million, a wider loss than expectations of -$73.1 million. 

UnitedHealth Group (UNH) is down more than -5% to lead losers in the Dow Jones Industrials after the Guardian reported the company secretly paid nursing homes to reduce hospital transfers for ailing residents.

Target Corp (TGT) is down more than -4% after reporting that Q1 comparable sales fell -3.8%, weaker than the consensus of -1.94%.  Target also cut its 2026 adjusted EPS forecast to $7.00-$9.00 from a previous estimate of $8.80-$9.80, below the consensus of $8.43. 

Moderna (MRNA) is down more than -4% after it “voluntarily” withdrew its application for regulatory approval for its combination Covid and flu vaccine for people 50 and older.

Credit reporting companies are falling today after FHFA Director Pulte questioned the cost of some credit reports.  Equifax (EFX) and TransUnion (TRU) are down more than -4%.

Take-Two Interactive Software (TTWO) is down more than -3% after announcing an underwritten public offering of 4.75 million shares of its common stock at a price of $225 per share to the public.

Alphabet (GOOGL) is up more than +3% to lead gainers in the Nasdaq 100 after analysts said an AI event eased fears over competition. 

Keysight Technologies (KEYS) is up more than +4% to lead gainers in the S&P 500 after reporting Q2 revenue of $1.31 billion, above the consensus of $1.28 billion, and forecasting Q3 revenue of $1.31 billion-$1.33 billion, stronger than the consensus of $1.30 billion.

Dycom Industries (DY) is up more than +16% after reporting Q1 contract revenue of $1.26 billion, above the consensus of $1.20 billion. 

XP Inc (XP) is up more than +1% after reporting Q1 adjusted net income of 1.24 billion Brazilian real, above the consensus of 1.18 billion real. 

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).