Market Review: Stocks Retreat Amid Bond Market Volatility and Trade Tensions

Market Review: Stocks Retreat Amid Bond Market Volatility and Trade Tensions
Originally published in The Epoch Times

U.S. stocks lost ground this week as investor anxiety over bond yields and renewed trade tensions sent major indexes into the red, particularly small-cap stocks. Despite the pullback, some analysts maintain that the recent market recovery remains intact.

As of May 23, the S&P 500 closed at 5,802, down 2.61% for the week. The Dow Jones Industrial Average declined 2.47% to 41,603, while the Nasdaq matched that drop to finish at 18,737. The Russell 2000 took the biggest hit, falling 3.47% to end the week at 2,039.

Market sentiment turned negative on May 19 following a weekend downgrade of U.S. sovereign debt by Moody’s—making it the third major rating agency to do so. This downgrade, coupled with ongoing deadlock over the federal budget in Congress, triggered a sharp spike in Treasury yields. The 10-year Treasury yield approached 4.6% in early trading that day.

Adding to the unease, JPMorgan Chase CEO Jamie Dimon voiced fresh concerns about the U.S. economy and financial markets during the bank’s investor day, compounding investor pessimism.

However, by late May 19, bond market fears began to subside. Wall Street analysts largely dismissed Moody’s downgrade as a backward-looking move. Bond yields retreated slightly, helping equity markets stabilize into May 20.

The calm didn’t last. Bond market jitters resurfaced on May 21 following a disappointing $16 billion auction of 20-year Treasury bonds. Yields spiked again, pressuring equities across the board.

Compounding investor concerns was a revival of trade tension between the U.S. and Europe, along with talk of new tariffs on imported smartphones. This stoked further volatility, with the CBOE Volatility Index (VIX) rising above 20 during the week.

Interest-rate-sensitive sectors bore the brunt of the sell-off. Homebuilder stocks were hit hard as mortgage rates rose to 7%. Toll Brothers, for instance, slid 2.8% despite beating earnings expectations. Regional bank stocks also declined—dragged down by losses in Treasury holdings—with the SPDR S&P Regional Banking ETF falling 4.79% for the week.

Among individual names, Deckers Outdoor and Ross Stores dropped 21% and 10%, respectively, after reporting underwhelming profits. Apple fell 7.57% on tariff worries.

On the upside, some "story stocks" outperformed. CoreWeave, Inc. surged 27.95% after Nvidia revealed a significant stake. Oklo, Inc. jumped nearly 30% on news of U.S. government support for its nuclear initiatives. United States Steel Corporation soared 28.9% following federal approval of its partnership with Nippon Steel.

Looking ahead, next week’s trading will be shortened by Memorial Day, but all eyes will be on upcoming Treasury auctions scheduled for May 28. These will serve as a litmus test for whether recent bond market disruptions are temporary or signal a deeper shift. Additionally, fresh economic data—including the second estimate of Q1 GDP and April’s PCE inflation numbers, both due May 29—could shape the market’s next moves.

“Moody’s downgrade may grab headlines, but for global investors, it’s a moment to recalibrate—not retreat,” said Ankit Shrivastava, founder and managing partner of Enventure, in an interview with The Epoch Times.

Market strategist Geranen remains undeterred by current headlines.

“If there’s anything April showed us, it’s that making investment decisions based on headlines can be very dangerous and harmful to long-term investment returns,” he noted.

Geranen added that the recent market uptrend remains structurally sound.

“The stock market’s dramatic recovery over the past six weeks suggests that investors are looking beyond trade noise, anticipating resolution and more stable policy. We wouldn’t be surprised to see record highs this summer.”