S&P 500: Rising Treasury Yields, Moody’s Downgrade and Budget Fears Hit US Stocks

Wall Street Slumps as Treasury Yields Rise and Budget Concerns Deepen

U.S. stocks are trading lower in early Wednesday action, pressured by rising Treasury yields and renewed concerns about U.S. fiscal policy. Traders are uneasy over a new Republican tax bill that could widen the federal deficit, following Moody’s recent downgrade of U.S. credit. The benchmark 10-year yield has climbed to 4.53%, while the 30-year has risen above 5%, both unsettling levels for equity markets.

The Dow Jones Industrial Average is down 0.9%, the S&P 500 is slipping by 0.7%, and the Nasdaq Composite is off by 1.1% as of the first 90 minutes of trading. The losses interrupt a strong month-long rebound. The S&P 500 and Nasdaq had each climbed more than 14% and 19%, respectively, since the last market dip triggered by new tariffs. But with bond yields rising again and political risk escalating, investors are pulling back from risk assets.

Is the Federal Budget Bill Driving Bond Yields and Investor Anxiety?

All eyes are on Washington, where GOP leaders are scrambling to push through a tax-cut bill. While the measure would lower taxes, it has run into opposition within the party over state and local deduction limits. Nonpartisan forecasts estimate the bill could add between $3 trillion and $5 trillion to the national debt, now at $36.2 trillion.

The budget standoff, coupled with recent tariffs and a credit downgrade from Moody’s, has triggered a spike in yields. Analysts suggest bond markets are pricing in long-term fiscal stress. “There’s concern that this bill does little to slow inflation or reduce the debt burden,” said CFRA’s Sam Stovall. “The market sees more debt, not less.”

Which Sectors and Stocks Are Taking the Hardest Hit?

All 11 S&P 500 sectors are in the red, with tech and consumer discretionary leading declines. Tech stocks, especially rate-sensitive names, are being hit hard. Amazon and Apple are down over 1% as higher rates discount future earnings potential.

UnitedHealth Group is the Dow’s worst performer, falling over 5% after HSBC downgraded the stock and reports surfaced that it had quietly paid nursing homes bonuses to cut hospital transfers.

Target has slumped nearly 7% after cutting its annual outlook, citing weaker discretionary spending. Semiconductor firm Wolfspeed has collapsed 66% on bankruptcy concerns.

Is Wall Street’s Rally Losing Steam After a Strong Month?

Despite the day’s selloff, major indexes are still enjoying sharp gains from last month’s lows. However, some strategists warn that the recent rebound may be overextended. “Investors are beginning to question whether this run-up was too fast,” said LPL Financial’s Kristian Kerr.

Morgan Stanley has upgraded U.S. equities to “overweight,” but acknowledges ongoing policy uncertainty. Market breadth remains weak, with declining stocks outpacing gainers nearly 4 to 1 on the NYSE.

What Should Traders Watch Next?

Traders should focus on Congressional negotiations over the budget and potential tax implications. Continued upward pressure on yields will also be key. A break above recent yield highs could increase equity market stress, especially in high-growth sectors. Any surprise in upcoming inflation data or new geopolitical developments could further rattle investor sentiment.

More Information in our Economic Calendar.