Weekly Wrap

The major indices lost ground this week, rattled by rising long-term rates associated with deficit angst, and driven by consolidation interest after a huge run off the April 7 lows. The week began in an excitable way, with Moody's downgrading the U.S. credit rating, and it ended in an excitable way, with President Trump noting Apple (AAPL) will face a tariff of at least 25% if the iPhones sold in the U.S. are not made in the U.S., and that he is recommending a straight 50% tariff for the EU, effective June 1, because "the trade talks are going nowhere."

Monday, May 19:

The groundwork for the start of today's session was laid after the close on Friday when Moody's announced a downgrade of its U.S. credit rating to Aa from Aaa due to the increase in government debt and interest payment ratios that are significantly higher than similarly rated sovereigns.

That headline shock precipitated a spike in longer-dated Treasury yields, a 1.0% decline in the U.S. Dollar Index, and selling interest in the equity futures market.

The 10-yr note yield, which settled Friday's session at 4.44%, went as high as 4.56%, while the 30-yr bond yield, which settled Friday's session at 4.90%, kissed 5.04%. And then the selling stopped.

Treasury yields reversed, with the 10-yr note yield settling at 4.47% and the 30-yr bond yield settling at 4.94%. Stocks, in turn, benefited once again from buy-the-dip interest and lingering optimism about the possibility of Congress passing the large reconciliation bill. The U.S. Dollar Index was down 0.7%.

The final numbers don't connote a picture of strength on their own, but the stock market's relative strength is rooted in the understanding that the Dow, Nasdaq, S&P 500, and Russell 2000 had been down as much as 0.7%, 1.4%, 1.1%, and 1.5%, respectively.

Once the headline shock of the Moody's downgrade wore off, participants settled into the notion that it wasn't really a "surprise," given that Standard & Poor's and Fitch Ratings had downgraded their U.S. credit ratings years earlier. That thinking presumably fostered some short-covering activity in the Treasury market that extended to stocks, which saw the S&P 500 record its sixth straight winning session.

There wasn't much corporate news governing today's trade, which had an M&M feel to it (macro and mechanical).

JPMorgan Chase (JPM 264.94, -2.58, -1.0%) slightly increased its FY25 net interest income guidance; Walmart (WMT 98.14, -0.10, -0.1%) garnered a rebuke from President Trump that it should "eat the tariffs;" the CEO and CFO of UnitedHealth Group (UNH 315.89, +23.98, +8.2%) collectively bought stock worth approximately $30 million; and JPMorgan downgraded Netflix (NFLX 1191.64, +0.11, +0.01%) to Neutral from Overweight.

Seven S&P 500 sectors finished higher. The health care sector (+1.0%) led the way. The next biggest gainer was the consumer staples sector, which gained a modest 0.4%. The energy sector (-1.6%) was in the losing category and was the only sector down more than 0.3%.

Market breadth improved as the session continued but still favored decliners by a narrow margin at the NYSE and Nasdaq when the closing bell rang.

Today's economic data was limited to the Leading Economic Index for April, which registered a 1.0% decline (Briefing.com consensus -0.7%) versus a downwardly revised 0.8% decline (from -0.7%) in March.

Tuesday, May 20:

The S&P 500 had a six-session win streak going, but on the seventh day it rested. There were no gains today as the stock market operated in consolidation mode following the massive run from the April 7 low. The Dow and Nasdaq followed suit, posting modest losses of their own, while the Russell 2000 was flat.

There wasn't any U.S. economic data of note to drive things, and the corporate news was limited. There was some added attention on President Trump's visit to Capitol Hill to discuss his objectives for the reconciliation bill with House GOP members. Reportedly, he told them not to mess with Medicaid cuts and rebuked the efforts by the SALT Caucus to raise the deduction limit beyond the $30,000 currently proposed, telling them to "let it go."

There was some chatter that neither camp was fully swayed by the president's exhortations, so there was a component of uncertainty around the reconciliation bill that contributed to the consolidation effort.

Overall, there wasn't much conviction in today's selling action. Eight S&P 500 sectors finished lower, but only one -- energy (-1.0%) -- declined at least 1.0%. Losses for the remaining sectors ranged from 0.2% to 0.8%. The three winning sectors -- utilities (+0.3%), health care (+0.3%), and consumer staples (+0.2%) -- reflected a more defensive-minded tape.

Market breadth skewed negative. Decliners led advancers by an 8-to-5 margin at the NYSE and by a roughly 11-to-10 margin at the Nasdaq.

Dow component Home Depot (HD 377.05, -2.21, -0.6%) was among the decliners, losing ground after a mixed Q1 report that featured an EPS miss, a revenue beat, a reaffirmation of FY26 guidance, and a declaration that the company does not plan to raise prices due to tariffs.

Alphabet (GOOG 165.32, -2.55, -1.5%) was another decliner amid its I/O event; meanwhile, Tesla (TSLA 343.82, +1.73, +0.5%) slotted into the advancers column but finished well off its session high of $354.98.

Mega-cap stocks, in general, were softer today, which fit with today's consolidation bias, but they showed some vigor in the closing stages to help the indices come back from lower levels as the closing bell approached. The Vanguard Mega-Cap Growth ETF (MGK) declined 0.5% after being down 1.2%.

Wednesday, May 21:

The stock market hit a wall today, and it didn't have so much to do with the disappointing earnings report and outlook from Target (TGT 93.01, -5.11, -5.2%) as it did with the concerning movement in Treasury yields.

The 10-yr note yield settled the cash session at 4.60%, up 12 basis points, while the 30-yr bond yield settled the day at 5.09%, up 13 basis points. The selling interest in the Treasury market was precipitated initially by inflation angst after the UK printed a hotter-than-expected CPI number for April and deficit angst. Press reports highlighted an agreement to raise the SALT deduction cap to $40,000 (from $10,000) and noted that conservative House GOP members were dropping their demands for larger cuts to Medicaid.

It is unclear at this point if the latter is the case, as the debate within the GOP continues as of this writing. There has been a suggestion, though, that the House may press ahead with a full vote on the reconciliation bill as early as tonight.

Treasury yields took another turn for the worse in the afternoon following a $16 billion 20-yr bond auction that saw some relatively soft dollar demand, evidenced by a 2.46 bid-to-cover ratio that fell short of the prior 12-auction average of 2.58. The high yield of 5.047% at the auction tailed the when-issued yield of 5.035% by more than a basis point.

The major indices, which had been vacillating with relatively modest changes, saw selling interest pick up and bids fall by the wayside after the auction. The spike in yields triggered renewed growth concerns that hit the small-cap Russell 2000 (-2.8%) the hardest and that ultimately contributed to losses in 10 of the 11 S&P 500 sectors.

The lone holdout was the communication services sector (+0.7%), which garnered support from Alphabet's (GOOG 170.06, +4.74, +2.9%) outperformance following its I/O event.

The real estate (-2.6%), health care (-2.4%), financials (-2.1%), consumer discretionary (-1.9%), and utilities (-1.9%) sectors were the biggest losers.

Market internals showed decliners outpacing advancers by a nearly 9-to-1 margin at the NYSE and by a 4-to-1 margin at the Nasdaq. Dow component UnitedHealth Group (UNH 302.98, -18.60, -5.8%) was among the decliners, pressured by an HSBC downgrade to Reduce from Hold and a report in The Guardian that chronicled allegations of the company paying nursing homes to reduce transfers between hospitals. UnitedHealth denounced the report, saying the DOJ investigated the allegations and declined to pursue the matter due to its finding of significant factual inaccuracies in the allegations.

Still, that didn't help the managed care company's stock, which joined many others today on the losing end of things. The major indices closed just off their worst levels of the session.

The only economic data out this morning was the MBA Mortgage Applications Index. It was down 5.1% week-over-week, with refinance applications and purchase applications both down 5.0% as demand weakened with rising mortgage rates.

Thursday, May 22:

Today's session started on a delicate note, as there was some nervous tension emanating from the Treasury market following the news that the House passed the reconciliation bill early this morning in a 215-214 party-line vote.

That bill, among other things, raises the SALT deduction cap to $40,000 (from $10,000), moves up the Medicaid work requirement date to December 2026 from 2029, and increases the debt ceiling by $4 trillion. The Tax Foundation estimates that it will increase long-run GDP by 0.6% and add $3.3 trillion to deficits over the next 10 years.

There was some knee-jerk selling in the Treasury market that took the 10-yr note yield up to 4.63% and the 30-yr bond yield up to 5.15%. Those moves triggered some added weakness in the equity futures market, but they started to reverse following a jobless claims report at 8:30 a.m. ET that showed a 36,000 increase in continuing jobless claims to 1.903 million for the week ending May 10. Yields then took another turn lower after the Existing Home Sales Report for April at 10:00 a.m. ET produced the slowest annualized pace of sales for that month (4.00 mln) since 2009.

By the time the Treasury market's cash session settled at 2:00 p.m. ET, the 10-yr note yield had retraced to 4.55%, while the 30-yr bond yield backed down to 5.06%. That improvement coincided with a pickup in the U.S. Dollar Index (+0.4% to 99.91) and fostered a recovery move by the stock market, which started the session on a softer note.

The recovery in the stock market was paced by the mega-cap stocks and the growth stocks, with names like Alphabet (GOOG 171.98, +1.92, +1.1%), NVIDIA (NVDA 132.83, +1.03, +0.8%), and Snowflake (SNOW 203.18, +24.06, +13.4%), which reported earnings and a reassuring outlook, exhibiting relative strength.

The major indices were plodding along with modest gains, but most of those gains were relinquished in a sell program that hit the market in the last 30 minutes of trading.

The consumer discretionary (+0.6%), communication services (+0.3%), and information technology (+0.1%) sectors, all of which house mega-cap constituents, were the lone sectors to end the session in positive territory. The industrials sector was flat, and the other seven sectors sported losses ranging from 0.1% (materials and financials) to 1.4% (utilities).

Reviewing today's economic data:

• Initial jobless claims for the week ending May 17 decreased by 2,000 to 227,000 (Briefing.com consensus 232,000), while continuing jobless claims for the week ending May 10 increased by 36,000 to 1.903 million.
  • The key takeaway from the report is that initial jobless claims are running steady at levels that are well below recession-type readings; moreover, this report covered the period in which the survey for the May employment report was conducted and should contribute to expectations that nonfarm payrolls will again show a relatively solid print.
  • Preliminary May S&P Global US Manufacturing PMI (Actual 52.3; prior 50.2) and Services PMI (Actual 52.3; prior 50.8).
  • Existing home sales decreased 0.5% month-over-month in April to a seasonally adjusted annual rate of 4.00 million (Briefing.com consensus 4.15 million) from an unrevised 4.02 million in March. Sales were down 2.0% from the same period a year ago.
    • The key takeaway from the report is that the median existing home price reached an April record of $414,000, putting the spotlight on affordability constraints as prices rise alongside mortgage rates.

Friday, May 23:

Capital markets had an excitable day following a few posts before the open from President Trump that fueled growth concerns and a heightened state of uncertainty about the tariff developments going into the holiday weekend.

The first post was a warning to Apple (AAPL 195.37, -5.99, -3.0%) that it will face tariffs of at least 25% on iPhones it intends to sell in the U.S. if they are not made in the U.S. The second post caused a bigger shock, as it conveyed the president's position that he will be recommending a straight 50% tariff on the EU, effective June 1, because "the trade talks are going nowhere."

The latter post, in particular, triggered a flight-to-safety to Treasuries that saw the yield on the 10-yr note drop from 4.54% to 4.45% in a hurry, and the yield on the 30-yr bond slide from 5.04% to 4.98%. Those moves, though, did not comfort the equity futures market, which took a risk-off turn at the same time the CBOE Volatility Index shot higher to 25.53 from yesterday's close of 20.28.

The Dow, Nasdaq, S&P 500, and Russell 2000 fell as much as 1.2%, 1.7%, 1.3%, and 1.7%, respectively, shortly after the open, pressured further by disappointing quarterly guidance and a lack of fiscal year guidance from retailers Deckers Outdoor (DECK 101.05, -25.04, -19.9%) and Ross Stores (ROST 136.99, -15.26, -10.0%).

Things took a calmer turn after CNBC reported that it was told by a White House official that the president's remarks should be viewed as negotiating leverage and that nothing has been implemented yet. The official also added that the stock market was overreacting to the news.

Separately, Treasury Secretary Bessent told Bloomberg TV that he is not worried about the rise in Treasury yields, observing that other countries' yields have increased further and that the move here could also be the bond market pricing in stronger growth because of the reconciliation bill.

The 10-yr note yield settled today's session at 4.51%, up seven basis points for the week, and the 30-yr bond yield settled at 5.04%, up 14 basis points for the week. The CBOE Volatility Index, meanwhile, backed down to 21.92 as of this writing.

The retreat in the stock market today was paced by Apple and the mega-cap stocks. Their relative underperformance manifested itself in the underperformance of the information technology (-1.3%), communication services (-1.0%), and consumer discretionary (-0.9%) sectors. The Vanguard Mega-Cap Growth ETF (MGK) declined 1.1%.

The rate-sensitive utilities sector (+1.2%) was the only sector to gain at least 1.0%.

Breadth figures showed decliners leading advancers by a 5-to-4 margin at the NYSE and by a roughly 13-to-9 margin at the Nasdaq.

U.S. markets will be closed Monday for Memorial Day.

Reviewing today's economic data:

• New home sales surged 10.9% month-over-month in April to a seasonally adjusted annual rate of 743,000 units (Briefing.com consensus 679,000) from a downwardly revised 670,000 (from 724,000) in March. On a year-over-year basis, new home sales were up 3.3%.
  • The key takeaway from the report is that new home sales in April were bolstered by a decline in the median sales price; however, the excitement surrounding the headline beat was muted by the sharp downward revision to new home sales for March. Taking that revision into account, there wasn't a great deal of change in the March-April period compared to what economists knew and expected going into the April report.