May 21st Market Overview

Happy Wednesday.

Treasury yields spiked, triggering a selloff after a disappointing 20-year bond auction. People are growing concerned about U.S. fiscal health as Washington debates a tax bill that could add $3 trillion to the deficit.

Bitcoin managed to reach a new all-time high above $109,000 and gold is also up!

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Let's dig in...

Executive Summary

1. Bond market turbulence dominated trading as the 30-year Treasury yield surged above 5% for the first time since October 2023, reflecting diminishing investor appetite for U.S. government debt amid growing fiscal concerns.
   

2. All major indexes down, with the Dow leading losses after a weak 20-year Treasury auction accelerated the bond selloff.
   

3. Target slashed its full-year outlook, citing tariff uncertainty, softening consumer spending, and backlash to its pullback in diversity initiatives.
   

4. Nvidia CEO Jensen Huang called U.S. export controls on chips to China a “failure” and praised Trump’s plan to revise these rules.
   

Market Overview

Key Market Drivers

1. Fiscal Policy Concerns: President Trump’s tax bill, expected to increase budget deficits by $3 trillion over ten years, continues to worry bond investors. These concerns were amplified by Moody’s recent downgrade of U.S. credit.
   

2. Retail Sector Challenges: Major retailers including Target and Nike shared plans for handling tariff impacts, with Target cutting its outlook and Nike planning price increases on select products starting in June.
   

3. Bitcoin Record: The cryptocurrency reached a new all-time intraday high of $109,359 before moderately retreating, showing strength despite broader market weakness.
   

4. Treasury Market Disruption: The 20-year Treasury bond auction attracted weak demand, selling at higher yields than anticipated. This pushed the 10-year yield toward 4.6% and the 30-year yield above 5%.
   

Stock Spotlight

Target $TGT ( ▲ 2.32% ) cut its full-year sales outlook, now expecting a low single-digit decline versus previous expectations for modest growth. Q1 results missed across all metrics, with comparable sales falling far below estimates.

UnitedHealth Group $UNH ( ▼ 1.91% ) dropped sharply following an HSBC downgrade. Adding pressure, UK newspaper The Guardian reported allegations that UnitedHealth secretly paid nursing homes bonuses to reduce hospital transfers, potentially compromising patient safety according to whistleblowers.

Canada Goose $GOOS ( ▲ 7.26% ) jumped after reporting better-than-expected quarterly earnings.

Phillips 66 $PSX ( ▲ 1.96% ) tumbled as activist investor Elliott Management appeared poised to win two board seats.

Nike $NKE ( ▲ 2.42% ) fell as the company announced plans to increase prices on select footwear by $2-$10 beginning in June to manage tariff impacts, though prices for kids’ products and Jordan items will remain unchanged.

Big Name Updates

Alphabet $GOOGL ( ▲ 2.02% ) unveiled major AI initiatives at its I/O developer conference. The company reported Gemini app reaching 400 million monthly active users and introduced Gemini 2.5, which DeepMind’s Hassabis called “a step toward AGI.”

Nvidia $NVDA ( ▲ 1.21% ) market cap reached $3.35 trillion, closing in on Microsoft $MSFT ( ▲ 0.6% ) as the world’s most valuable company. CEO Jensen Huang criticized U.S. export controls on AI chips to China, noting they cost billions in lost sales and cut Nvidia’s market share from 95% to 50%.

Tesla $TSLA ( ▲ 3.65% ) will launch its robotaxi service in Austin next month without safety drivers. CEO Elon Musk predicted hundreds of thousands of Teslas running on unsupervised Full Self-Driving in the U.S. by next year.

Apple $AAPL ( ▲ 0.07% ) is reportedly preparing to roll out a new AI app strategy at its June 9 WWDC event, planning to open its large language models to third-party developers.

Other Notable Company News

Medtronic $MDT ( ▼ 3.91% ) plans to separate its $2.5 billion diabetes business into a stand-alone public company within 18 months, according to Wall Street Journal reports.

Ford Motor $F ( ▲ 0.05% ) will share its Kentucky battery plant with Nissan $NSANY as part of scaling back EV ambitions. The arrangement helps Nissan reduce exposure to tariffs on imported vehicles and parts.

Super Micro Computer $SMCI ( ▼ 0.79% ) announced plans to extend server production in the U.S. as AI demand surges. CEO Charles Liang noted challenges to Trump’s supply chain localization efforts, stating “America is expensive” and “America has not done production for about 30 years.”

Advanced Micro Devices $AMD ( ▼ 0.28% ) looks cheap according to Bank of America. Analyst Vivek Arya maintained a buy rating, noting AMD’s stock ownership among large-cap U.S. active fund managers has fallen from over 40% to just 23% in the past year.

Take-Two Interactive $TTWO ( ▲ 0.19% ) announced a proposed $1 billion public offering of common stock, sending shares down in after-hours trading.

Sector Watch

Bond Market

The Treasury bond selloff intensified following a disappointing $16 billion auction of 20-year bonds that attracted soft demand from investors.

• The 30-year Treasury yield ripped above 5% for the first time since October 2023

• The 10-year yield approached 4.6%

• Bonds sold at higher yields than traders had anticipated

Market concerns after Moody’s recent credit rating downgrade and debate about the tax bill’s deficit impact. Sustained yields above 5% on the 30-year have historically signaled potential problems for equity market.

Policy Watch

President Trump intensified pressure on fellow Republicans to pass his comprehensive tax-and-spending legislation.

• Package includes eliminating taxes on tips, overtime, and Social Security benefits

• Enhances child tax credits

• Projected to increase federal deficits by ~$3 trillion over the next decade

• Senate already unanimously passed the No Tax on Tips Act (100-0 vote)

On the trade front, Trump met with South African President Cyril Ramaphosa to discuss resetting trade relations, particularly in energy, healthcare, and automotive manufacturing. This follows Trump’s April announcement of 30% “reciprocal” tariffs on South Africa, which were subsequently paused for 90 days.

IMF’s Gita Gopinath warned that U.S. fiscal deficits are “too large” with an “ever-increasing” debt-to-GDP ratio, aligning with market concerns about long-term U.S. fiscal stability.

What to Watch

1. Bond Market Stability: Watch Treasury yields in coming days. Persistent yields above 5% on the 30-year could signal more pain for equities, while a reversal might provide relief.

   • Bond auctions will be key indicators of investor sentiment

   • Correlation between yields and equity sectors worth monitoring
     

2. Retailer Earnings Reactions: With Target $TGT selling off after cutting guidance, monitor how other retailers respond to tariff pressures.

   • TJX $TJX and Lowe’s maintained outlooks despite similar headwinds

   • Consumer spending patterns shifting away from discretionary items
     

3. Bitcoin’s Momentum: After reaching a new all-time high, watch if Bitcoin can sustain levels above $100,000.

   • Potential spillover effects for crypto-related stocks

   • Indicator of risk appetite despite equity market weakness
     

4. Tech Leadership Rotation: As Nvidia takes over Microsoft in market cap, monitor whether tech sector leadership broadens.

   • Bank of America suggests AMD looks undervalued

   • AI chip demand continues to drive valuations
     

5. U.S.-China Trade Developments: Following comments from Nvidia CEO about export controls being a “failure,” watch for policy shifts.

   • Changes could significantly impact semiconductor companies

   • Supply chain reconfiguration accelerating globally
     
     Thanks for reading 🙂
     
     - John
     

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