[UNITED STATES] U.S. stocks ended sharply lower on Wednesday as a surge in Treasury yields fueled investor anxiety over the prospect of ballooning federal debt should Congress approve former President Donald Trump's proposed tax-cut legislation.
All three major indexes posted their steepest one-day losses in a month. The selloff extended to small-cap stocks, with the Russell 2000 logging its worst day since April 10.
The market downturn was largely driven by growing concerns about the long-term fiscal ramifications of the tax proposal. While analysts acknowledge the potential for short-term gains in corporate profits and economic activity, fears are mounting that the added debt load could push interest rates higher, elevating borrowing costs across the board—from the federal government to consumers. These worries come as the Federal Reserve continues to signal more rate hikes on the horizon.
Treasury yields climbed after a $16 billion auction of 20-year bonds by the Treasury Department drew lackluster demand. The yield on the benchmark 10-year Treasury note jumped 10.8 basis points to 4.589%, reaching its highest level since mid-February during the session.
The weak appetite for longer-dated bonds reflects investor unease over the sustainability of current debt levels. With U.S. national debt already at historic highs, the potential addition of trillions more is casting doubt on the government’s fiscal discipline. This uncertainty has prompted a shift to safer assets, while sectors sensitive to rate increases experienced heavy selling.
On Capitol Hill, a Congressional committee convened a rare hearing as House Republicans grappled with internal divisions over proposed budget cuts, including reductions to Medicaid. Nonpartisan estimates suggest the Republican tax plan could increase the federal debt by $3 trillion to $5 trillion, adding to the existing $36.2 trillion burden.
The proposed spending cuts—particularly those targeting social programs—have sparked contentious debate among Republicans. While some lawmakers insist the cuts are necessary to offset the tax breaks and control the deficit, others have expressed concern about the social impact, particularly on vulnerable communities. The resulting legislative gridlock has further fueled market jitters.
“There are any number of headlines, all of which have consequences if indeed they come to pass,” said Michael Farr, CEO of investment advisory firm Farr, Miller & Washington. “Many of these things are threats that fade rather quickly, and markets are trying to digest what's important, what's material, or what might just be negotiating bluster from the administration.”
The Dow Jones Industrial Average tumbled 816.80 points, or 1.91%, to 41,860.44. The S&P 500 dropped 95.85 points, or 1.61%, to 5,844.61, while the Nasdaq Composite slid 270.07 points, or 1.41%, to 18,872.64.
Losses were broad-based, with 10 of the 11 major S&P 500 sectors ending in the red. Real estate, healthcare, financials, utilities, consumer discretionary, and tech stocks led the declines. Communication services was the sole gainer.
Among notable movers, Alphabet rose 2.7%, bucking the tech sector trend. Nvidia lost 1.9%, Apple declined 2.3%, and Tesla shed 2.7%. UnitedHealth Group slumped nearly 6% following a Guardian report alleging it had paid bonuses to nursing homes to reduce hospital transfers. HSBC subsequently downgraded the stock from "hold" to "reduce."
Target shares sank 5.2% after the retailer cut its full-year outlook, citing weakened consumer discretionary spending. Wolfspeed plunged nearly 60% after reports emerged suggesting the semiconductor firm was preparing to file for bankruptcy within weeks. Despite the day’s losses, the S&P 500 remains up more than 17% from its April lows, when global markets were rattled by Trump's imposition of reciprocal tariffs.
In a more bullish signal, Morgan Stanley upgraded its view on U.S. equities to “overweight,” citing continued—albeit slow—global economic expansion amid policy uncertainty.
Declining stocks outpaced advancers on the NYSE by a ratio of nearly 6-to-1. The exchange saw 188 new highs and 104 new lows. The S&P 500 registered 15 new 52-week highs against 4 new lows, while the Nasdaq posted 53 new highs and 92 new lows. Trading volume totaled 19.39 billion shares on U.S. exchanges, well above the 20-day average of 17.5 billion.
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