NEW YORK – On Wednesday, Wall Street endured a significant downturn, dragged down by mounting pressures from the bond market. This was amid proliferating worries over the United States government’s escalating debt and other pertinent global economic issues.
The S&P 500 suffered a 1.6% loss, marking its consecutive decline following a previously interrupted six-day winning streak. The Dow Jones Industrial Average took a hit of 816 points, or 1.9%, whereas the Nasdaq composite decreased by 1.4%.
Early in the day, stock movements were relatively stable, with minimal variations, as retailers such as Target released mixed profit forecasts amidst prevailing uncertainties arising from the U.S. trade tensions. A major turning point occurred when the U.S. government disclosed the outcome of its recent 20-year bond auction.
The government routinely auctions bonds to source funds needed for its expenditures. In this latest instance, the U.S. government was compelled to present a yield as steep as 5.047% to secure sufficient borrower interest, seeing a total of $16 billion being borrowed over 20 years.
This drove yields for various other Treasury bonds higher, notably for the extensively monitored 10-year Treasury, which saw its yield rise to 4.59% from 4.48% on Tuesday, and a sharp jump from 4.01% observed early last month. This shift is notable within the bond market context.
Jonathan Krinsky, chief market technician at BTIG, remarked, “Bonds finally appear to be getting equities’ attention,” highlighting the 30-year Treasury yield surge beyond 5% and neared levels last witnessed in 2023.
The consistent climb in Treasury yields can be partially attributed to potential tax reductions being debated in Washington, which might add trillions more to U.S. debt levels. Additionally, speculations are rife about the inflationary impacts of ongoing trade tariffs.
Developed nations worldwide are witnessing rising yield patterns, partly resulting from increased governmental borrowing to fulfill fiscal needs and central banks like the Federal Reserve curbing their government bond acquisitions.
When the U.S. faces increased borrowing costs, it tends to push interest rates higher for citizens and corporations alike, impacting mortgages, vehicle loans, and other credit segments, potentially hampering economic growth. Furthermore, investors may shy away from high stock prices amid rising yields.
Moody’s Ratings became the final major rating agency to downgrade the U.S. government’s credit rating last week, raising alarms about unsustainable debt levels.
In a report by BofA Global Research, Bank of America strategists shared, “We do not think that the downgrade matters by itself, but it has served as a wake-up call for those investors who had been ignoring the ongoing fiscal discussion.”
On the stock front, Target saw a 5.2% fall after reporting less-than-expected profit and revenue for the year’s start. The company attributed some setbacks to customer boycotts. It had earlier curtailed numerous diversity, equity, and inclusion initiatives in response to criticisms from the White House and conservative figures, which led to further backlash. Wall Street’s bigger worry came when Target revised its profit outlook downward for the entire year.
Carter’s, a retailer specializing in children’s apparel, plunged 12.6% after deciding to cut its dividend payouts. CEO Doug Palladini noted the decision stems partly from anticipated investments in the coming years and the potential for markedly higher product costs due to newly proposed import tariffs.
Overall, the S&P 500 dipped 95.85 points to settle at 5,844.61. The Dow Jones Industrial Average bottomed out at 41,860.44 with a decline of 816.80, and the Nasdaq composite went down by 270.07 to close at 18,872.64.
In recent weeks, a variety of companies have cited tariffs and economic unpredictability as significant challenges in forecasting the coming year’s financial landscapes. Retail giants like Walmart have indicated impending price hikes to counterbalance rising tariffs.
After a steep downturn earlier in the year, U.S. stocks have managed to recover most losses, aided by the Trump administration’s delay or rollback of several stringent tariffs. Investors maintain optimism about the prospect of permanent tariff reductions following successful trade negotiations globally.
International stock markets displayed mixed trends, with marginal fluctuations across Europe and Asia. The FTSE 100 in London edged up by 0.1% post a report on the UK’s inflation spike, its highest in over a year in April. Meanwhile, Japan’s Nikkei 225 fell by 0.6% after reports of faltering exports due to tariff-related impacts.