Bond Market Trumps Big, Beautiful Tax Bill

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Amalya Dubrovsky and Karen Friar of Yahoo Finance report the Dow, S&P 500, Nasdaq fall as Trump tariff threats roar back, US deficit anxiety deepens:

US stocks fell on Friday to register weekly losses as investors assessed President Trump's latest tariff threats and the potential impact of his massive tax bill on the deficit and the economy.

The Dow Jones Industrial Average (^DJI) sank 0.6%. The S&P 500 (^GSPC) also fell roughly 0.7%. The tech-heavy Nasdaq Composite (^IXIC) backed off about 1%.

All three major averages fell more than 2% for the week.

The three indexes trimmed steeper losses that took off after Trump said on Friday that Apple (AAPL) must pay a 25% tariff on iPhones sold but not made in the US. The tech giant has begun shifting some manufacturing to India, with China, home to its key suppliers, locked in a trade war with the US. Apple shares fell about 3%.

On Friday afternoon, Trump implied the tariffs would apply to other cell phone manufacturers.

"It would be more, it would be also Samsung and anybody that makes that product, otherwise it wouldn't be fair," Trump told reporters on Friday afternoon. "Again, when they build their plant here there's no tariffs. So they're going to be building plants here."

At the same time, Trump threatened to hike the tariff on EU imports to "a straight 50%" beginning June 1 as trade talks between the two have stalled.

The president's warnings shattered a more muted mood on Wall Street as investors wound down to the Memorial Day trading break on Monday.

His comments add another supply chain complication for companies already worried about the potential hit to the economy from Trump's tariff blitz. Earnings season has seen several companies hold off from providing full annual guidance thanks to uncertainty around tariffs.

All three major gauges are on track for a losing week. Stocks have suffered as deficit worries pushed up Treasury yields, which intensified as Trump's tax bill forged ahead. Wall Street is still weighing the economic impact of Trump's revised bill, which cleared a key hurdle in the House vote for approval.

Fears that it could boost the US deficit by trillions have stoked a surge in longer-dated Treasury yields, which were already in high focus after a Moody's downgrade. The 30-year yield (^TYX) eased but held above the key level of 5% on Friday after recently reaching highs not seen since the financial crisis.

Focus has also begun to turn to Nvidia (NVDA) earnings, due Wednesday after the bell.

This year, the chip giant has found itself in the crosshairs of Trump's fast-moving trade policy as well as debates in Big Tech over costly AI investments. Nevertheless, options traders expect a lower level of volatility in Nvidia's stock after its results next week, compared with recent quarters.

John Melloy and Lisa Kailai Han of CNBC also report the Dow slides 200 points, S&P 500 tumbles for a fourth day after Trump threatens tariffs on EU, Apple: 

Stocks declined Friday after President Donald Trump raised trade fears again, warning Apple and recommending stiffer duties on the European Union.

The Dow Jones Industrial Average lost 256.02 points, or 0.61%, to end at 41,603.07. The S&P 500 shed 0.67% and closed at 5,802.82, and the Nasdaq Composite dropped 1% and settled at 18,737.21.

Apple shares fell 3% after Trump posted on Truth Social that iPhones sold in the U.S. must be made in the U.S. and if they are not “a tariff of at least 25% must be paid by Apple.” The move against Apple by Trump is the first against a specific company in his tariff rollout this year.

The president also said trade discussions with the EU “are going nowhere” and recommended “a straight 50% tariff on the European Union, starting on June 1, 2025.”

Stocks came off their lows of the day after CNBC’s Eamon Javers reported the White House did not interpret Trump’s remarks as a formal statement of policy.

Trump’s actions come at a time when tariff tensions were easing. Trump in April implemented duties on most nations in the world, which rattled the stock market and nearly put the S&P 500 in a bear market. The president then paused the stiffest tariffs for 90 days and hatched some preliminary agreements with the U.K. and China, causing stocks to recover. The S&P 500 got back to even on the year last week, but was back in negative territory at the end of Friday’s trading.

Investors were buying stocks on speculation that more agreements would be rolling out with various nations during this three-month pause. Friday’s actions by Trump could mean that hope was misplaced.

“We’ve had this de-escalation tailwind at the market’s back for like six weeks now — and the market has had one of its best six-week stretches in the last 75 years — and a re-escalation of trade war rhetoric threatens that. I don’t think we’ll retest the lows or anything like that, unless it really ramps up, but this is certainly a step in the wrong direction from the market’s perspective,” said Ross Mayfield, investment strategist at Baird, in an interview with CNBC.

Elsewhere, shares of United States Steel surged 21% after Trump said on Truth Social that the company would form a “partnership” with Nippon Steel. Earlier this year, the Japanese company’s bid to buy its U.S. rival had been blocked.

Friday’s declines added to the market’s weekly losses. The S&P 500, Dow and Nasdaq all lost more than 2% on the week.

Looking ahead, Rick Wedell, the president and chief investment officer at RFG Advisory warned that this “roller coaster ride” of de-escalating and re-escalating tariff tensions is likely to be a permanent fixture of Trump’s second term.

“It is very important for investors to understand that this lingering trade issue is likely to be here for, I think, the duration of this administration. I don’t think they are going to look the other way on trade at any point. I think they think of this as a defining characteristic of the administration’s legacy is fixing the international trade deals,” he said. “I would just encourage investors to never get lulled into a false sense either way.”

Stocks sold off this week for a whole host of reasons, not just President Trump's latest  tariff threats which added fuel to the fire.

The bond market reacted negatively to Trump's 'big, beautiful bill' as yields on long bonds continued to surge higher:

And as Bridgewater's founder Ray Dalio warns, the bond market dictates the price of risk and right now, things are shaky:

Moreover, as US long bond yields rise, the knock-on effects to the economy and banking system could be material:

And if things weren't bad enough in the US bond market, the Japanese bond market is also imploding, sending shock waves across global bond markets:

With US and Japanese long bond yields climbing and Trump signalling more tariffs ahead for companies and countries, it's no wonder global stocks sold off this week.

Moreover, the US dollar continued to experience weakness and some are questioning whether this is partly by design:

No wonder some are warning the era of American exceptionalism is over but others remind us why it's still intact:

On the flip side, while stocks and bonds sold off this week, bitcoin rallied to a record high of $111,000 earlier today:

That's right folks, when you think the financial system is imploding, put all your money in bitcoin (sigh!):

Over in the stock market, the divergence between professional hedge fund investors and retail investors keeps growing, and once again this year, the retail crowd is outperforming the hedgies:

Still, while some hedge funds are selling equities, others are definitely buying them and pumping some stocks up in the process.

This week there was a massive rally again in quantum computing stocks led by IonQ, Inc. (IONQ) and D-Wave Quantum Inc. (QBTS) and some others today:

 

Interestingly if you look at the top holders of IONQ Inc. and D-Wave Quantum Inc., you'll see elite quant fund D.E. Shaw massively increased its stake last quarter in both of them and Renaissance Technologies and Two Sigma, other elite quant funds, also purchased new stakes:

Top holders of IONQ Inc. (IONQ):

Top holders of D-Wave Quantum Inc. (QBTS): 

One thing I know from trading stocks is these large quant funds can pump and dump stocks with impunity so you need to pay attention to their top holdings.

What else? Nuclear-power startup Oklo along with S&P 500 nuclear giants Constellation Energy and Vistra soared in stock market trade as President Donald Trump signed executive orders Friday to ease regulatory requirements on approvals for new nuclear reactors and enhance fuel supply chains. 

The big losers this week? Solar stocks which got slaughtered as Trump's tax bill rolls back renewable energy credits:

If you ask me, some of these solar stocks are way oversold this year and offer good value to long-term investors but the tax bill sure doesn't help them, it can kill the industry.

Below, the best and worst performing US large cap stocks this week (data from barchart.com):

 

Alright, let me wrap it up there and go to some clips covering markets this week.

Below, the House has passed President Donald Trump's "big, beautiful bill," which is now on its way to the Senate. Some worry that the bill will make the country's debt worse. NewsNation senior political contributor George Will says it is the most predictable crisis in American history.

Next, David Rubenstein, The Carlyle Group co-founder and co-chairman and Baltimore Orioles owner, joins 'Squawk Box' to discuss the bond market, budget fight on Capitol Hill, state of the economy, debate over carried interest, Trump administration's targeting of Harvard and other universities, President Trump's tariff warning against Apple, and more.

Third, CNBC’s Steve Liesman and Chicago Fed President Austan Goolsbee joins 'Squawk Box' to discuss President Trump's tariff threats on the EU and Apple, impact on the Fed's interest rate decision, state of the economy, rate path outlook, and more.

Fourth, Jim Bianco joins Bloomberg to discuss how Tariffs/Trade Deals impact Global Bond Markets, Inflation & the Dollar with Jonathan Ferro & Lisa Abramowicz.

Fifth, Ed Yardeni, Yardeni Research president, joins 'Closing Bell' to discuss the story in equity markets.

Sixth, Warren Pies, 3Fourteen Research co-founder, joins 'Power Lunch' to discuss Pies' technical take on equity markets, the state of the equity rally, and much more.

Seventh, Jeff Kilburg, CEO of KKM Financial, says markets are poised for gains, not panic. He points to profit-taking, bond yield pressure, and picks Visa as a strong, essential name in volatile times.

Eight, JPMorgan Chase & Co. CEO Jamie Dimon says he can’t rule out that the US economy will fall into stagflation as the country faces huge risks from both geopolitics, deficits and price pressures. Dimon also says the firm is "a long-term investor" in China and discusses his views on the Federal Reserve's policymaking. He speaks to Haslinda Amin on the sidelines of the JPMorgan Global China Summit in Shanghai.

Ninth, Treasury Secretary Scott Bessent says US regulators may ease the supplementary leverage ratio (SLR) rule, which constrains banks' trading in the $29 trillion Treasuries market, this summer. Tweaking the SLR could reduce US Treasury yields by tens of basis points, as it requires banks to hold capital when trading against their investments in Treasuries. 

Lastly, since it's Memorial Day Weekend, take the time to watch Jordi Visser's latest discussing the bond market panic, capital controls & Bitcoin’s breakout, AI, tariffs, & long duration risk. 

He breaks down a huge week across global markets, with the bond market emerging as the new fear factor. Are we heading for an American Liz Truss moment? He also explains why that’s suddenly become a major talking point—and what it means for long-term yields, government liquidity injections, and the growing risks of capital controls inside the US. Absolute must watch

Wish all Americans a nice Memorial Day weekend.

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