NEW YORK, May 21 (Xinhua) -- U.S. stocks ended lower on Wednesday as 20-year bond auction saw weak demand, and U.S. Treasury yields surged.
The Dow Jones Industrial Average dropped 816.80 points, or 1.91 percent, to 41,860.44. The S&P 500 fell 95.85 points, or 1.61 percent, to close at 5,844.61, while the Nasdaq Composite lost 270.07 points, or 1.41 percent, ending at 18,872.64, its first negative day in three.
Ten of the eleven major S&P 500 sectors closed in negative territory. Real estate and health care led the declines, falling 2.63 percent and 2.37 percent, respectively. Communication services was the only sector to post a gain, rising 0.67 percent.
The downturn came as U.S. Treasury yields climbed, with the 10-year yield nearing 4.6 percent and the 30-year yield rising above 5 percent. Yields spiked further after the U.S. government's 16-billion-U.S.-dollar auction of 20-year bonds received weaker-than-expected demand, resulting in a higher yield than markets had anticipated.
In a client note published Wednesday, Piper Sandler's chief investment strategist Michael Kantrowitz outlined important thresholds for the 10-Year Treasury yield and explained how movements around those levels could affect the stock market. "The path of rates will also be crucial for equities, particularly for relative performance," Kantrowitz wrote. "Since 2022, equity markets have struggled when 10 yr rates moved above 4.5-4.75 percent and we are pushing up against that zone once again."
Meanwhile, investors kept a close eye on developments in Washington, D.C., where debate continues over U.S. President Donald Trump's tax-and-spending bill. The proposed legislation would extend existing tax cuts and introduce new ones, but is projected to add roughly 3 trillion U.S. dollars to the federal deficit over the next decade.
"The question now is, from a fiscal perspective, what will the tax bill look like, and will it undo all of the recent fiscal frugality by simply raising the debt level at a slower rate of pace? So I think that's why the 10-year yield is moving higher -- because investors are worried that we're really not doing anything to slow the pace of inflation and to reduce the debt," Sam Stovall, CFRA Research chief investment strategist, told CNBC in an interview.
The bond-driven pressure on equities was compounded by disappointing earnings reports from major retailers. Target dropped 5.21 percent after slashing its annual forecast, citing reduced consumer spending and lower confidence. Lowe's lost 1.68 percent after reaffirming its guidance, and TJX fell 2.89 percent after maintaining its outlook, assuming tariffs with China remain unchanged.
