US stocks retreat as Treasury yields rise amid debt concerns

[UNITED STATES] U.S. stocks declined on Tuesday, with the S&P 500 snapping a six-session winning streak as rising Treasury yields weighed on investor sentiment. The move came amid renewed scrutiny of the U.S. fiscal outlook, putting the spotlight on the nation’s sovereign debt trajectory.

The uptick in yields followed growing anxiety over the long-term sustainability of U.S. debt. The Congressional Budget Office recently projected that federal debt could soar to 166% of GDP by 2054 under current policy, prompting fresh debate among investors about fiscal responsibility despite continued resilience in near-term economic indicators.

On Capitol Hill, former President Donald Trump sought to rally Republican lawmakers behind a broad tax-cut package. Analysts estimate the proposal could add between $3 trillion and $5 trillion to the already $36.2 trillion federal debt.

The Dow Jones Industrial Average ended lower, breaking a three-day winning run, while the Nasdaq Composite retreated after two straight sessions of gains.

Geopolitical tensions also dampened market sentiment, as trade frictions with key partners—including the European Union and China—resurfaced. Analysts warned that ongoing trade uncertainty could pose risks to corporate earnings, especially for multinationals with significant international exposure.

Losses were broad across sectors, with eight of the S&P 500’s 11 segments in the red. Energy, communication services, and consumer discretionary stocks led the declines, while utilities, healthcare, and consumer staples saw modest gains.

"It’s a bit of a breather after the run we've seen—a chance for markets to consolidate and churn a bit beneath the surface," said Garrett Melson, portfolio strategist at Natixis Investment Managers in Boston. "But if you look at the fixed-income space, there’s been a resurgence in demand, and now we’re seeing yields climb once again."

The rise in yields also reflects shifting inflation expectations, as recent data indicated a slight increase in core consumer prices. While the Federal Reserve has maintained a cautious stance on rate cuts, persistent inflation has raised concerns that any easing could be delayed further.

The Dow dropped 114.83 points, or 0.27%, to 42,677.24. The S&P 500 slipped 23.14 points, or 0.39%, to 5,940.46, while the Nasdaq Composite shed 72.75 points, or 0.38%, closing at 19,142.71.

Investors were also monitoring commentary from Federal Reserve officials, including St. Louis Fed President Alberto Musalem, for insights on the future path of monetary policy. The rising debt burden has already prompted credit downgrades from major ratings agencies, including Moody’s, Fitch, and S&P Global Ratings.

Market pricing suggests traders expect two 25-basis-point rate cuts by the end of 2025, with the first likely in September, according to data from LSEG. The yield on the benchmark 10-year Treasury note edged up 0.4 basis points to 4.481%.

Among individual stocks, Home Depot slipped 0.6% despite reporting better-than-expected first-quarter sales. Tesla rose 0.5% after CEO Elon Musk said at a forum in Qatar that he remained committed to leading the company for at least five more years.

In contrast, other major tech names declined, including Nvidia, which is set to report earnings on May 28. The upcoming results are viewed as pivotal, given Nvidia’s central role in driving the year’s AI-fueled rally. Any miss could spark volatility, particularly in the semiconductor space, which has been a major contributor to the S&P 500’s 2025 performance.

On the NYSE, declining issues outpaced advancers by a ratio of 1.37 to 1. The exchange saw 219 new 52-week highs and 33 new lows. The S&P 500 posted 19 new highs and no new lows, while the Nasdaq Composite recorded 59 new highs against 46 new lows. Trading volume on U.S. exchanges totaled 16.14 billion shares, slightly below the 20-day average of 17.38 billion.