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Stocks' feverish rebound over the past month is now on pause as growing concerns about the fiscal deficit have sent Treasury yields roaring higher and President Trump is once again threatening to escalate tariffs.
On Friday, Trump threatened to place a direct 25% tariff on Apple products not made in the US while also warning he'd ramp up duties on the European Union to 50% at the start of June. This solidified a week of decline for stocks as the Nasdaq Composite (^IXIC) and Dow Jones Industrial Average (^DJI) dropped about 2.4%. Meanwhile, the S&P 500 (^GSPC) slid roughly 2.6% on the week.
In the week ahead, updates on the trade war and Trump's pending tax bill will remain in focus, while quarterly results from Nvidia (NVDA) are expected to take center stage on Wednesday after the market close. Reports from Okta (OKTA), Salesforce (CRM), and Costco (COST) will also receive investor attention.
The release of the Federal Reserve's preferred inflation gauge on Friday will headline the economic data schedule. Markets will be closed on Monday for Memorial Day.
President Trump's policies have continued to drive markets. Concerns over Trump's tax bill boosting the government deficit have pushed Treasury yields higher. At over 5.1%, the 30-year Treasury yield (^TYX) had been hovering near its highest level since 2007, while the 10-year Treasury yield (^TNX) had pressed above 4.6%, its highest level since February.
But the sell-off in bonds eased on Friday as Trump once again threatened to escalate tariffs, sending a reminder to investors that even with a 90-day tariff pause on a wide swath of countries, the trade policy whipsaw in markets is far from over.
"Safe to say for the time being we’ve hit 'trough' trade uncertainty," Piper Sandler chief investment strategist Michael Kantrowitz wrote in a note to clients on Friday. "At this point markets need to see these tariffs retracted AND bond yields to not spike again for any material move higher."
Friday's decline in treasuries sent the 10-year below the key 4.5% level Kantrowitz has been watching. As Kantrowitz highlights in the chart below, once the 10-year Treasury yield has risen above 4.5%, interest rate-sensitive stocks have seen increased underperformance in recent years.
This played out in last week's market action with the Russell 2000 Index (^RUT), which has many companies with more interest rate exposure than the S&P 500, falling nearly 4% compared to the S&P 500's 2.6% decline.
