May 20th Market Overview

Happy Tuesday.

The market took a breather today, participants seem to be digesting recent gains while keeping a close eye on those ongoing tariff discussions and the progress. Not much to say, we have had a fantastic run off early April lows.

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Let's dig in...

Executive Summary

1. Major indices declined as technology stocks, which led the recent rally, faced selling pressure
   

2. Home Depot $HD ( ▼ 0.94% ) plans to hold prices steady despite tariffs, contrasting with Walmart's recent warnings about price increases
   

3. President Trump failed to sway key House Republicans from the "SALT Caucus" on state and local tax deduction caps, threatening to delay his major tax reconciliation bill past the Memorial Day weekend deadline
   

4. International stocks outperforming U.S. equities by the widest margin since 1993
   

Market Overview

Key Market Drivers

1. Tech weakness breaks winning streak: Technology stocks reversed course, with Nvidia , Alphabet , Amazon , and Apple all down. Bill Northey of U.S. Bank Wealth Management described current market sentiment as “optimism without clarity” as tariff negotiations continue.
   

2. Moody’s downgrade fallout: Government bonds sold off for a second day following Friday’s U.S. credit rating downgrade, with the 10-year Treasury yield briefly pushing above 4.5%. Capital Economics noted “potential storm clouds” for Treasuries.
   

3. Divergent tariff responses: Retailers are split on handling tariffs. Unlike Walmart's warnings about higher prices, Home Depot plans to maintain current pricing by leveraging supplier relationships and shifting production away from China.
   

Stock Spotlight

Tesla $TSLA ( ▲ 2.08% ) shares rose after CEO Elon Musk committed to leading the company for at least five more years and vowed to cut back on political spending. Morgan Stanley maintains an overweight rating, noting Tesla is shifting focus from EVs to autonomy as “China may have already won the EV battle.”

Home Depot $HD ( ▼ 0.94% ) maintained its full-year guidance and stated it won’t raise prices due to tariffs. The company aims to take market share from competitors who increase prices. Evercore ISI analyst Greg Melich noted that while the company is positioned well, “some like for like SKUs will have to go up.”

Big Name Updates

Nvidia $NVDA ( ▲ 1.21% ) fell despite Citi reiterating a buy rating with a $150 price target. The analyst highlighted CEO Jensen Huang’s Computex keynote that reinforced Nvidia’s push to expand Gen AI infrastructure with updates like NVLink Fusion and RTX PRO 6000 Blackwell servers.

Google $GOOGL ( ▲ 1.37% ) saw positive developments as California regulators cleared Waymo to expand its autonomous ride-hailing service deeper into the Bay Area, including San Jose.

Amazon $AMZN ( ▲ 0.82% ) declined amid the broader tech selloff. Analyst Ming-Chi Kuo indicates Amazon is internally developing a large-sized foldable device, potentially competing with Apple and Huawei in this emerging market.

JPMorgan Chase $JPM ( ▲ 0.23% ) received a reiterated buy rating from Bank of America with a $300 price target following its Investor Day. The analyst cited management’s focus on ROE optimization and CEO Jamie Dimon indicating he’s unlikely to step down in the near term.

UnitedHealth $UNH ( ▼ 2.08% ) and Humana $HUM ( ▼ 7.58% ) both advanced, putting them on pace to break five-week losing streaks if gains hold through week’s end.

Other Notable Company News

Solar stocks: Invesco Solar ETF $TAN ( ▼ 7.45% ) , Sunrun $RUN ( ▼ 37.05% ) , and Array Technologies $ARRY ( ▼ 3.09% ) up after President Trump announced construction could resume on a New York offshore wind farm that would be the first to bring electricity directly to New York City.

Moderna $MRNA ( ▲ 3.59% ) and Pfizer $PFE ( 0.0% ) gained after the FDA provided new regulatory guidance for future Covid-19 vaccine boosters, setting different approval standards based on patient risk.

The TJX Companies $TJX ( ▼ 1.11% ) reached all-time highs dating back to its 1987 IPO. Similarly, Dollar General $DG ( ▼ 0.17% ) and Dollar Tree $DLTR ( ▲ 1.17% ) both saw significant gains, highlighting strength in the discount retail segment.

Hewlett Packard Enterprise $HPE ( ▲ 0.29% ) gained following an upgrade to outperform from Evercore ISI, citing an attractive risk-reward entry point.

Sector Watch

Bond Market

Treasury yields rose for a second consecutive day, with the 10-year briefly topping 4.5% before settling at 4.483%.

• Government bonds continue to react to the tax-and-spending bill expected to increase deficits and Friday’s Moody’s downgrade

• The U.S. 30-year Treasury yield climbed to 4.969%

Policy Watch

The Trump administration detailed criteria for its “Most Favored Nation” drug-pricing plan, targeting brand-name medicines without generic alternatives.

• The Department of Health and Human Services expects drugmakers to voluntarily match lower international prices
  

• House Republicans from the “SALT Caucus” continue blocking the major tax bill over caps on state and local tax deductions.
  

• The standoff threatens to delay legislation past the Memorial Day target date set by Trump and House Speaker Mike Johnson
  

• The bill may now be pushed into June despite White House pressure

The European Union announced a two-euro fee for direct-to-consumer packages and 50 European cents for warehouse-distributed items.

• This move could impact bargain retailers like Shein and Temu

What to Watch

1. Retailer earnings tomorrow: Target $TGT, Lowe’s $LOW, and TJX $TJX report results.
   • Look for divergent responses to tariffs following Walmart and Home Depot's contrasting approaches
   • Consumer spending patterns will be key after Stifel’s strategist warned of potential pullback
   

2. Housing data releases: Will provide insights into the difficult spring selling season.
   • Impact of higher mortgage rates on buyer demand
   • Potential pass-through of tariff costs on construction materials
   

3. Global trade negotiations: Japan is mulling acceptance of U.S. tariff reduction rather than exemption.
   • India working on three-phase trade deal with mid-year deadline
   • Progress could signal flexibility in the administration’s approach to other partners
   

4. Tax bill negotiations: Republicans remain divided despite Trump’s efforts to secure passage.
   • Watch for potential compromise proposals on SALT deduction cap
   • Delay beyond Memorial Day could impact market expectations for fiscal policy

   
   
   Thanks for reading 🙂
   
   - John
   

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