Wall Street Halts Rout, But Fiscal Worry Lingers: Markets Wrap

This content was published on May 22, 2025 - 19:24

8 minutes

(Bloomberg) — Wall Street made a cautious comeback just a day after a Treasury selloff that shook markets around the globe, with stocks halting a slide amid a rebound in bonds. The dollar also rose.

Following the worst equity rout in a month, the S&P 500 saw a mild advance. A rally in the world’s biggest technology companies drove the market higher on Thursday, though most other industries retreated. Long-term US government bonds, which had led the recent selloff on concerns about the nation’s surging debt load, wiped out earlier losses. Bitcoin topped $111,000.

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The recent selling in Treasuries had reflected worries about the US fiscal outlook, with anxiety being amplified after Moody’s Ratings on Friday downgraded the nation as a top-notch sovereign credit. Investors are concerned that President Donald Trump’s signature tax bill that narrowly passed the House would boost the nation’s already swelling deficit.

While pressures on the Treasury market eased somewhat, stocks would probably need a “material move lower” in bond yields to have the green light to return to recent highs, according to Louis Navellier, chief investment officer at Navellier & Associates.

For several market observers, the message from the bond market is clear: Unless the US gets its finances in order and soon, the perceived risks of lending to the government will increase, and borrowing costs on long-term Treasury debt will climb even further. That would make reducing the deficit even harder and lift the cost of money for households and companies throughout the economy.

“Market volatility has resurfaced amid renewed uncertainty surrounding trade policy and the fiscal outlook,” said Mark Haefele at UBS Global Wealth Management: “With bond yields elevated and tariff and budget risks in focus, this volatility may persist as investors monitor further developments in policy.”

The S&P 500 rose 0.1%. The Nasdaq 100 added 0.4%. The Dow Jones Industrial Average gained 0.3%.

The yield on 10-year Treasuries fell five basis points to 4.54%. A dollar gauge added 0.3%.

“Even if the inability to reduce the deficit in the US doesn’t lead to default, a large deficit still implies greater bond supply, and perhaps eventual inflation as the debt is monetized to avoid default,” said Thierry Wizman at Macquarie. “Either way, it makes nominal fixed-income instruments less attractive as long-term investments.”

The mood remains unsettled, according to Fawad Razaqzada at City Index and Forex.com, adding that elevated yields are “notoriously unfriendly” to risk assets.

“While Wall Street’s recent pullback has been relatively contained, there’s a palpable sense of trepidation that more turbulence could be on the horizon, raising doubts over the bullish narrative for US stocks,” he said.

The recent move in Treasuries neared the pain threshold for the equity market, according to Goldman Sachs trading desk. Based on their calculations, when the 10-year bond yield moves higher by two standard deviations within a one-month period, the stock market comes under pressure.

“At what level do yields start to put real pressure on the stock market? The easy big round number is 10-year at 5%,” the desk writes in a note to clients. “The more nuanced answer is above 4.7% before the end of May as velocity of move in rates matters much more than absolute levels in regards to impacting stocks.”

On the economic front, US business activity and output expectations improved as trade-related anxiety eased even as price pressures continued to mount. In a sign of a still healthy labor market, initial jobless claims dropped to the lowest in four weeks. Meantime, existing home sales unexpectedly fell to the slowest pace in seven months.

“The ‘hard’ economic data still do not indicate a US economy in distress,” said Don Rissmiller at Strategas. “Some activity has likely been pulled forward ahead of the implementation of tariffs. The payback should be starting now, and any whiff of bond market discipline on politicians will create additional headwinds for interest-rate sensitive sectors in the economy (housing, autos, etc) as budget negotiations proceed into the summer.”

“The Fed is not ready to help yet,” Rissmiller added.

Federal Reserve Governor Christopher Waller said the central bank could cut interest rates in the second half of 2025 if the Trump administration’s tariffs on US trading partners settle around 10%.

“If we can get the tariffs down closer to 10% and then that’s all sealed, done and delivered somewhere by July, then we’re in good shape for the second half of the year,” Waller said Thursday during an appearance on Fox Business.

Corporate Highlights:

The Justice Department is probing whether Alphabet Inc.’s Google violated antitrust law with an agreement to use the artificial intelligence technology of a popular chatbot maker, according to people with knowledge of the matter.
Investors of clean-power stocks are running for the exits after a massive tax and spending bill that would gut former President Joe Biden’s landmark climate law narrowly passed the House of Representatives.
Family members of people killed in two fatal crashes of Boeing Co.’s 737 Max jets are urging the US Justice Department to reject a possible deal that would allow the planemaker to avoid a criminal charge.
Southwest Airlines Co. shares tumbled as its chief financial officer called out ongoing softness in demand for air travel.
President Trump said Wednesday evening that he was giving “very serious consideration to bringing Fannie Mae and Freddie Mac public” after more than a decade of being under government oversight. The shares climbed.
Insurers like UnitedHealth Group Inc. and Humana Inc. sank as the Trump administration plans to expand government audits of private Medicare health plans.
Ralph Lauren Corp. expects its strong revenue growth to ease in the latter part of the year, striking a cautious note on US consumer spending.
Nike Inc. is returning to Amazon.com Inc.’s online store after leaving it in 2019, part of efforts by the world’s largest sportswear company to renew growth and mend ties with key wholesale partners.
Advance Auto Parts Inc. soared after reporting comparable sales that fell less than expected in the first quarter.
Walmart Inc. is cutting corporate staff in the company’s headquarters in Bentonville, Arkansas, and other offices, people familiar with the matter said, as the world’s biggest retailer looks to trim costs and contends with economic volatility.
AT&T Inc. agreed to buy the consumer fiber operations of Lumen Technologies Inc. for $5.75 billion, expanding its fast broadband service in major cities like Denver and Las Vegas.
Novo Nordisk A/S is selling its blockbuster weight-loss drug Wegovy to new patients at $199 for the first month as easy access to cheaper copycats comes to an end.
Snowflake Inc. gave a strong outlook for quarterly sales after launching a slew of new products over the last year.

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