Major U.S. stock indices closed mixed on May 22nd. The Dow Jones ended flat, while the Nasdaq gained 0.28%. However, the S&P 500 index closed 0.04% lower, marking its third consecutive day of decline.
Large-cap technology stocks mostly trended upward. Tesla saw a nearly 2% gain, Google rose over 1%, while Microsoft, Nvidia, Amazon, and Meta posted gains of less than 1%. Leading performers included cryptocurrency and computer hardware sectors. Quantum surged over 11%, Coinbase climbed 5%, Seagate Technology increased more than 4%, and Canaan Advanced Materials gained over 2%.
In contrast, energy stocks and non-ferrous metals faced significant declines. NextEra Energy dropped more than 6%, First Solar fell over 4%, and Century Aluminum decreased by more than 2%.
Solar Sector Under Pressure
The solar energy sector experienced a sharp sell-off. Sunrun, the largest U.S. rooftop solar company, plummeted 37.05%. Equipment suppliers SolarEdge Technologies and Enphase Energy declined 24.67% and 19.63%, respectively. Maxeon Solar Technologies and NextEra Energy also fell 9.42% and 6.43%.
This downturn followed the U.S. Republican-led House of Representatives narrowly passing a tax reduction bill. This legislation could terminate numerous green energy subsidies that have supported the renewable energy industry. The bill now moves to the Senate for review. It proposes over $4 trillion in tax cuts over the next decade while reducing spending by at least $1.5 trillion. Additionally, it aims to raise the U.S. debt ceiling by $4 trillion, below the $5 trillion sought by the Senate.
Chinese Equities and Commodities
Most popular Chinese stocks listed in the U.S. closed lower. The Nasdaq Golden Dragon China Index declined 1.18%. XPeng Motors led the losses with a drop exceeding 7%, followed by CenturyLink down over 6%. Alibaba, Baidu, Li Auto, and NIO all fell more than 1%. On the gainers' side, Pinduoduo advanced over 3%, and Zhihu rose more than 2%.
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The FTSE China A50 Index futures closed down 0.2% overnight at 13,722 points.
In commodities, COMEX gold futures fell 0.56% to $3,295.1 per ounce. COMEX silver futures decreased 1.39% to $33.18 per ounce.
WTI crude oil futures settled at $61.20 per barrel, down $0.37 or 0.60%. Brent crude futures closed at $64.44 per barrel, declining $0.47 or 0.72%.
Bond Market Dynamics
The U.S. Treasury market continued facing selling pressure due to a weak 20-year bond auction. On the evening of May 22nd, the yield on the 30-year U.S. Treasury note briefly climbed to 5.149%, its highest level since October 2023. The yield spread between 5-year and 30-year Treasuries widened to as much as 100 basis points.
The Federal Reserve reiterated its policy stance of avoiding direct participation in government bond issuance. Fed Governor Christopher Waller stated on the 22nd that the Fed would not purchase bonds in primary auctions.
Max Gokhman, Deputy Chief Investment Officer at Franklin Templeton Investment Solutions, noted that as large investors gradually shift from U.S. Treasuries to other safe-haven assets, the nation's debt servicing costs will continue rising. This could initiate a steeper bearish spiral for Treasury yields, exert further downward pressure on the U.S. dollar, and reduce the attractiveness of U.S. equities.
A recent Deutsche Bank report highlighted that the core issue lies in foreign investors' unwillingness to finance the U.S. fiscal and current account deficits at current price levels. This problem, the report suggests, requires Congressional action through fiscal tightening rather than monetary policy intervention by the Fed.
Positive Economic Indicators
S&P Global released data showing that the preliminary U.S. Manufacturing, Services, and Composite PMI for May all exceeded expectations and indicated expansion.
- The Manufacturing PMI preliminary reading was 52.3, surpassing the expected 49.9 and the previous 50.2. This marks the fifth consecutive month above the 50-point threshold that separates expansion from contraction.
- The Services PMI preliminary reading was also 52.3, higher than the forecast of 51.0 and the prior 50.8.
- The Composite PMI preliminary reading came in at 52.1, exceeding the expected 50.3 and the previous 50.6. This follows a dip to its lowest point of 2023 the previous month.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented that U.S. business confidence improved in May from April's concerning slump. He attributed the eased pessimism regarding the year-ahead outlook largely to the decision to pause additional tariff impositions.
Williamson also issued a caution, noting that market sentiment and output growth remain relatively subdued. He suggested that part of May's recovery might be linked to businesses preparing in advance for potential further tariff-related issues. Concerns about tariff-induced supply shortages and price increases led to the highest accumulation of input inventories since the survey began 18 years ago.
Federal Reserve's Outlook on Rates
Fed Governor Christopher Waller indicated that if the U.S. government maintains tariffs on trade partners at around 10%, the Fed could potentially begin lowering interest rates in the second half of 2025.
Waller stated in an interview, "If we can get tariffs down to near 10% and everything is settled and fully implemented by July, then we are in a good position in the second half of the year." He added, "The Fed would then have good conditions to undertake a series of rate cuts."
The Fed has held benchmark rates steady this year, citing robust overall economic performance and uncertainty surrounding U.S. tariff policy. The administration has implemented a baseline 10% tariff on dozens of U.S. trade partners, temporarily shelving plans for higher levies.
Waller pointed out that if the government reverts to higher tariff levels, it would "have a greater impact on inflation and limit our room for adjustment on short-term rates."
Frequently Asked Questions
What caused the S&P 500 to decline for three consecutive days?
The decline was influenced by sector-specific pressures, particularly in solar energy due to potential policy changes, ongoing adjustments in the bond market, and broader economic uncertainties surrounding trade and fiscal policy.
Why did Bitcoin's price surge to a new high?
Bitcoin's price increase is driven by continued institutional interest, broader adoption as a digital asset, and market dynamics that often see it act as a hedge against traditional market volatility and inflationary pressures.
How do U.S. Treasury yield movements affect the stock market?
Rising Treasury yields can make bonds more attractive relative to stocks, potentially drawing investment away from equities. They can also signal expectations for higher inflation or interest rates, which can increase borrowing costs for companies and dampen economic growth.
What is the significance of the PMI data exceeding expectations?
PMI (Purchasing Managers' Index) data above 50 indicates economic expansion. Readings exceeding expectations suggest stronger-than-anticipated growth in the manufacturing and services sectors, which is a positive sign for overall economic health.
What would higher tariffs mean for inflation and interest rates?
Higher tariffs can lead to increased prices for imported goods, contributing to inflation. This could compel the Federal Reserve to maintain higher interest rates for longer to combat rising prices, potentially slowing economic activity.
When might the Federal Reserve potentially begin cutting interest rates?
Based on recent commentary, if certain conditions like stabilized tariff levels around 10% are met by mid-2025, the Fed could consider initiating rate cuts in the second half of 2025, though this is dependent on evolving economic data. 👉 Access advanced market analysis tools