A Relentless Climb in Yields Tests Appetite for Stocks

A weeklong rebound in stocks showed signs of a pause this week, dragged down after a punishing move higher in Treasury yields. 

While investors largely shrugged off Moody’s downgrading U.S. debt earlier in the week, they couldn’t ignore a weak 20-year Treasurys auction, which sent stocks tumbling and longer-term yields surging higher. A bigger hit came Thursday when the House narrowly passed President Trump’s “one big, beautiful bill.” Investors are worried that the bill includes more tax cuts than spending decreases, which threatens to deepen the fiscal deficit by nearly $3 trillion through 2034 – instead of reining it in. 

The 30-year Treasury yield hit over 5.041% this week, up from 4.575% a year ago. Meanwhile, the 10-year yield jumped to 4.518% compared to 4.470% a year ago. 

That weighed on stocks, as higher yields reduce the value of companies’ future earnings. The S&P 500 logged a decline of 2.6%, while the Nasdaq Composite fell 2.5%. 

“The market has weakened, as the overall narrative is now back to the worry about the U.S. deficit,” Fundstrat Head of Data Science Ken Xuan said during the weekly huddle. He didn’t find the auction to be particularly worrying. 

Head of Research Tom Lee remains positive about the big picture, focusing instead on how the S&P 500 is off 5.6% from its all-time highs

“We’ve had a bull run since April, but nobody believes it,” he said in his Macro Minute videos. “Investors we speak to are still looking for reasons for stocks to fall and not reasons for upside.”

Head of Technical Strategy Mark Newton agrees, arguing that technically the market still looks to be in very good shape

“We’ve seen some meaningful improvement in technical momentum and breadth and participation in technology, which has been helpful,” Newton said. 

Stocks have swung wildly this year, with investors hanging onto President Donald Trump’s every word about tariffs. Though the tariffs turmoil had started to make way for some reprieve over the past two weeks, they made a reappearance Friday when the president warned of 50% tariffs on Europe from next month. He also took a stab at Apple, saying the iPhone maker will have to pay them. Apple shares fell 3% Friday.

Lee believes there’s “plenty of fuel” for stocks to reach new records because of two main reasons. First, bitcoin prices hit new highs this week, even as stocks fell. The cryptocurrency’s recent performance indicates that it’s a leading indicator for where stocks are headed. Second, investors are underweight U.S. stocks. As the market rallies, investors will be tempted to buy in, keeping the pullbacks shallow. 

A Relentless Climb in Yields Tests Appetite for Stocks

Chart of the Week

A Relentless Climb in Yields Tests Appetite for Stocks

Head of Research Tom Lee said this is the third-most hated rally since 2020. The first one was during the brief Covid-19-driven sell-off. The second one came during 2022 when stocks marked a low in October. In order for the bears to turn into bulls, each time, he said, it required stocks to hit fresh all-time highs.

Recent ⚡ FlashInsights

Many who might be fearful of “the R-word” aka. Recession, should see that Comex   C +N/A%  opper is breaking out today to the highest level since late April. This is a meaningful technical breakout, which should result in Copper pushing back to test March peaks over $5. Moves like this in “Dr. Copper” thought to be a leading indicator for Economic strength, don’t typically happen in recessionary times. (   HG -0.24%  _F )
May 23 · 3:09 PM
Please don’t over-react to tariff headlines
  • we saw scary headlines from April 2-April 15
  • How many proved to be buying oppties?
  • We believe this is the same situation
Please look thru the noise https://x.com/nicktimiraos/status/1925882204921397447?s=46&t=ox_Iko2UDeJ6GX8T2qbNkw
May 23 · 3:04 PM
While the Yield curve remains pointed higher and likely won’t reverse too meaningfully ahead of the long weekend, i expect that the bump in yields proves short-lived into next week before the entire curve starts to shift lower. Given the positive trend for the 10’s-2’s curve, this likely brings 2-year yields down more rapidly at first
May 22 · 12:54 PM

FS Insight Video: Weekly Highlight

A Relentless Climb in Yields Tests Appetite for Stocks

Key incoming data

  • 5/1 9:45 AM ET: Apr F S&P Global Manufacturing PMI Tame
  • 5/1 10:00 AM ET: Apr ISM Manufacturing PMI Tame
  • 5/2 8:30 AM ET: Apr Non-Farm Payrolls Tame
  • 5/2 10:00 AM ET: Mar F Durable Goods Orders MoM Tame
  • 5/5 9:45 AM ET: Apr F S&P Global Services PMI Tame
  • 5/5 10:00 AM ET: Apr ISM Services PMI Tame
  • 5/6 8:30 AM ET: Mar Trade Balance Tame
  • 5/7 9:00 AM ET: Apr F Manheim Used Vehicle Index Hot
  • 5/7 2:00 PM ET: May FOMC Decision Mixed
  • 5/8 8:30 AM ET: 1Q P Unit Labor Costs Tame
  • 5/8 8:30 AM ET: 1Q P Non-Farm Productivity QoQ Tame
  • 5/8 11:00 AM ET: Apr NY Fed 1yr Inf Exp Mixed
  • 5/13 6:00 AM ET: Apr Small Business Optimism Survey Tame
  • 5/13 8:30 AM ET: Apr Core CPI MoM Tame
  • 5/15 8:30 AM ET: May Philly Fed Business Outlook Tame
  • 5/15 8:30 AM ET: Apr Core PPI MoM Tame
  • 5/15 8:30 AM ET: May Empire Manufacturing Survey Tame
  • 5/15 8:30 AM ET: Apr Retail Sales Tame
  • 5/15 10:00 AM ET: May NAHB Housing Market Index Tame
  • 5/16 10:00 AM ET: May P U. Mich. Sentiment and Inflation Expectation Hot
  • 5/16 4:00 PM ET: Mar Net TIC Flows Tame
  • 5/19 9:00 AM ET: May M Manheim Used Vehicle Index Tame
  • 5/22 8:30 AM ET: Apr Chicago Fed Nat Activity Index Tame
  • 5/22 9:45 AM ET: May P S&P Global Services PMI Tame
  • 5/22 9:45 AM ET: May P S&P Global Manufacturing PMI Tame
  • 5/22 10:00 AM ET: Apr Existing Home Sales Tame
  • 5/22 11:00 AM ET: May Kansas City Fed Manufacturing Survey Tame
  • 5/23 10:00 AM ET: Apr New Home Sales Hot
  • 5/27 8:30 AM ET: Apr P Durable Goods Orders MoM
  • 5/27 9:00 AM ET: Mar S&P CoreLogic CS home price
  • 5/27 10:00 AM ET: May Conference Board Consumer Confidence
  • 5/27 10:30 AM ET: May Dallas Fed Manuf. Activity Survey
  • 5/28 10:00 AM ET: May Richmond Fed Manufacturing Survey
  • 5/28 2:00 PM ET: May FOMC Meeting Minutes
  • 5/29 8:30 AM ET: 1Q S GDP QoQ
  • 5/30 8:30 AM ET: Apr Core PCE Deflator MoM
  • 5/30 10:00 AM ET: May F U. Mich. Sentiment and Inflation Expectation
A Relentless Climb in Yields Tests Appetite for Stocks

Stock List Performance

A Relentless Climb in Yields Tests Appetite for Stocks
A Relentless Climb in Yields Tests Appetite for Stocks

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