US stocks sank amid rising interest rates

The American stock market “hit the wall” today — and the reason for this was not so much the weak reporting of Target (TGT 93.01, -5.11, -5.2%), as the alarming behavior in the US Treasury bond market.

The yield on 10–year government bonds rose by 12 basis points to 4.60% in the main session, while 30–year yields rose by 13 points to 5.09%. The wave of sales began amid heightened inflation concerns after the UK released higher–than–expected consumer price index data for April. An additional pressure factor was increased concerns about the budget deficit: the media reported an agreement to increase the SALT tax deduction limit to $40,000 (from $10,000), as well as the fact that conservatives in the House of Representatives allegedly rejected demands for deeper cuts in Medicaid funding.

It is still unclear whether this is the case — the discussion of the bill on budget consolidation in the ranks of Republicans continues. However, there are signs that the House of Representatives may hold a full vote on the bill today.

An additional negative impact on the bond market came in the afternoon after the placement of 20–year Treasury bonds worth $16 billion. The auction showed weak demand: the coverage ratio was 2.46 against the average value for the last 12 auctions at 2.58. The yield at the auction was 5.047%, exceeding the yield on the secondary market (5.035%).

Up to this point, the main indexes fluctuated in a narrow range, but after the auction, active sales began, and quotes began to lose ground. The sharp rise in yields has again raised concerns about the prospects for economic growth, which has particularly affected small—cap indexes – the Russell 2000 index lost 2.8%, becoming the outsider of the day.

The result of the day was a drop in 10 of the 11 sectors of the S&P 500. The only exception was the communications services sector (+0.7%), which was supported by Alphabet shares (GOOG 170.06, +4.74, +2.9%) amid a positive reaction to the announcements from the Google I/O event. The sectors of real estate (-2.6%), healthcare (-2.4%), finance (-2.1%), durable goods (-1.9%) and utilities (-1.9%) suffered the largest losses.

The internal dynamics of the market looked weak: on the NYSE, almost 9 falling shares accounted for one rising share, on the Nasdaq — 4 to 1 in favor of a decline. Among the outsiders was a component of the Dow index, UnitedHealth Group (UNH 302.98, -18.60, -5.8%), whose shares came under pressure after HSBC‘s downgrade to Reduce and The Guardian‘s publication about allegedly questionable practices in the service sector for older Americans. UnitedHealth denied the charges, saying the Justice Department had conducted an investigation but dropped the charges due to a lack of reliable facts. Nevertheless, the company‘s shares, like most market participants today, closed in the “red zone“.

The main indexes finished trading near the minimum levels of the session. The only macroeconomic indicator released this morning, the MBA Mortgage Application index, showed a 5.1% decrease over the week. Applications for refinancing and for the purchase of housing decreased by 5.0% amid rising mortgage rates.

Our American FTinvest 11 portfolio has been fluctuating near zero for most of the session today; only in recent hours has there been a drawdown, and the index has closed near the daily low. The total decrease for the day was 0.37%, the index closed at 730.26.