U.S. bond yields surge, stocks tumble amid deficit concerns
The Wednesday session on Wall Street ended with significant declines in the main indices. This was influenced by the rapidly rising yield of U.S. Treasury bonds. Investors began to worry that the new U.S. budget bill might further strain the already large national deficit.
The Dow Jones Industrial fell by 1.91% at the close, to 41,860 points. The S&P 500 declined by 1.61% by the end of the day, reaching 5,845 points. The Nasdaq Composite decreased by 1.41% to 18,873 points.
The Russell 2000 index of mid-cap companies fell by 2.63% to 2,050 points. The VIX index increased by 14.81% to 21 points. The yield on 10-year Treasury bonds rose by nearly 11 basis points to 4.59%.
The stock markets recorded solid gains after the U.S. reached an agreement with China last week to temporarily reduce mutual tariffs. However, it's now evident that the stock market rallies have lost momentum, and concerns are escalating about the growing U.S. debt level.
Susana Cruz, a strategist at Panmure Liberum, stated that the rebound in markets following the U.S.-China tariff reduction has lost momentum.
Chris Weston, head of research at Pepperstone, noted that investors are contemplating relocating their capital outside the United States. While this doesn’t yet amount to a mass exodus, he explained that investors are actively reassessing opportunities in other markets.
Morgan Stanley upgraded its recommendation for U.S. stocks and Treasury bonds to "overweight" due to reduced uncertainty related to tariffs, lack of recession risk, and potential further interest rate cuts. However, the bank indicated that it expects the dollar to remain under pressure.
Rising concerns about Trump's tariffs
The yield on U.S. Treasury bonds rose sharply last month as concerns about President Donald Trump's tariffs undermined confidence in the status of U.S. debt as a safe haven.
In April, 10-year bonds fluctuated from below 3.9% to over 4.5% within just a few days. The yield dropped from those levels after Trump announced delays in implementing the tariffs.
UnitedHealth Group shares fell by more than 5% after "The Guardian" reported that the healthcare conglomerate secretly paid nursing homes thousands of dollars in bonuses to avoid transferring sick patients to hospitals. HSBC also downgraded its stock rating to "reduce" from "hold."
Netflix shares rise, Tesla slumps
Netflix shares rose by over 2%, with trading volume during Wednesday's session reaching a record high since its initial public offering in May 2002. Target dropped by 5% after lowering its annual forecast, citing declines in discretionary customer spending.
Tesla shares fell by over 2% as CEO Elon Musk announced his intention to remain in his position for the next five years.
Lowe's fell by nearly 2% despite the company reporting a smaller than expected decline in comparable sales in the first quarter.
The U.S. saw a decrease in the MBA mortgage application index - the seasonally adjusted index fell by 5.1% in the week ending 16 May. Previously, the index had risen by 1.1%.
U.S. crude oil inventories rose by approximately 190,000 tonnes, or 0.3%, to 60 million tonnes last week. Gasoline stocks fell by roughly 116,000 tonnes, or 0.36%, to 31 million tonnes in the same period. Distillate fuel reserves, including heating oil, increased by around 82,000 tonnes, or 0.56%, to 14 million tonnes.
In the oil market, June contracts for WTI are down by 1.14% to $61.32 per barrel, while July futures for Brent are down by 1.15% to $64.63 per barrel.
