S&P 500 Falls After $8.6 Trillion Surge From Lows: Markets Wrap

This content was published on May 21, 2025 - 00:17

6 minutes

(Bloomberg) — Wall Street’s rally took a breather on Tuesday, with stocks falling as traders awaited fresh catalysts after a six-day run that put the S&P 500 up almost 20% from its April lows.

The US equity benchmark lost steam following an $8.6 trillion surge to around “overbought” levels. A slide in its most-influential group – big tech – weighed on trading, with Alphabet Inc. down 1.5% amid the company’s developer conference. Tesla Inc. was the only megacap gaining as Elon Musk said he’s committed to leading the electric-vehicle giant five years from now.

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Long-term Treasury yields climbed as fractious US budget negotiations kept focus on the growth in deficit spending. President Donald Trump is growing frustrated with demands to significantly boost the cap on the state and local tax deduction, according to a senior administration official, signaling a deadlock as Republicans aim to quickly pass a giant tax-cut bill.

Despite the pullback in stocks, May is shaping up as surprisingly strong for the S&P 500. Markets have calmed after months of turmoil as hopes grow that a tariff blitz unleashed by Trump will be less severe than expected. Still, investors are scouring charts for clues on whether the advance can persist, with the gauge near levels that some technicians view as a sign of overheating.

“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,” said Matt Maley at Miller Tabak. “However, unless that breather turns out to be a serious reversal, a retest of those all-time highs soon is very possible.”

The S&P 500 fell 0.4%. The Nasdaq 100 slid 0.4%. The Dow Jones Industrial Average lost 0.3%.

The yield on 10-year Treasuries advanced three basis points to 4.48%. A dollar gauge slipped 0.2%.

Risks such as tariff uncertainty, softening economic data and fiscal headwinds challenge the sustainability of the recent equity rebound, JPMorgan Chase & Co. strategists including Tony SK Lee wrote in a note.

“We expect volatility ahead as investors contend with uncertainty on several fronts,” said Solita Marcelli at UBS Global Wealth Management. “Further progress seems necessary for trade deals to last. Trump’s tax cuts could add pressure to the bond market. The Federal Reserve is likely to resist rate cuts in the near term while economic headwinds mount.”

Fed Reserve Bank of St. Louis President Alberto Musalem said tariffs will likely weigh on the US economy and weaken the labor market. Musalem said the Fed can deliver a “balanced response” to both inflation and employment as long as Americans’ outlook on future prices remains anchored at the central bank’s 2% target.

The bond-market revolt against Washington’s fiscal largess is far from over, according to Garda Capital Partners’ Tim Magnusson, who says a rapid increase in yields is likely the only thing that will motivate Congress to rein in the deficit.

“The bond market is going to have the final say on what happens fiscally,” Magnusson said in an interview at the firm’s New York office. Lawmakers “are going to get tested more — 5% is not the final line in the sand.”

Meantime, currency options traders are now more pessimistic than they’ve ever been about the dollar’s path over the next year, according to one commonly-cited measure of investor sentiment.

One-year risk reversals — a gauge of how expensive it is to buy versus sell a currency in the options market — fell to minus 27 basis points in favor of puts over calls for an aggregate proxy of Bloomberg’s dollar gauge. That mark is the most negative level on record, according to data compiled by Bloomberg going back to 2011, surpassing even a level briefly hit at the outset of pandemic-driven market gyrations five years ago.

Corporate Highlights:

Alphabet Inc.’s Google will offer “AI mode” in search to all US users, part of an effort to bring products to market faster and keep pace with new rivals in the artificial intelligence age.
Apple Inc. is preparing to allow third-party developers to write software using its artificial intelligence models, aiming to spur the creation of new applications and make its devices more enticing.
Home Depot Inc. maintained its guidance for the fiscal year as US sales ticked up, a sign that consumer spending has held up despite economic turbulence.
Nippon Steel Corp.’s $14.1 billion bid for United States Steel Corp. is more important than ever as tariffs and rising Chinese exports reshape the global market for the metal, according to a top executive at the Japanese firm.
US shale oil output hasn’t peaked and can expand, but not if prices are near $50 a barrel, according to the chief executive officer of oil giant ConocoPhillips.
Venezuela released an American citizen on the same day the US was set to give Chevron Corp. another 60-day waiver to operate in the country, part of a push by President Nicolas Maduro’s government and some voices in the Trump administration to improve ties.
Victoria’s Secret & Co. announced a shareholder rights plan after an investor began acquiring a substantial amount of stock in the lingerie retailer.

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