The Dow Jones Industrial Average plummeted 817 points, or 1.91%, as investors grew increasingly concerned about President Donald Trump’s tax bill. The S&P 500 fell 1.61%, and the Nasdaq Composite dropped 1.41%, marking the worst single-day performance for all three indices in a month. The sell-off was triggered by weak demand in a Treasury auction for 20-year notes, which yielded a rate above 5%.
This significant increase from the February auction indicates that investors are demanding higher returns to hold U.S. debt, amidst worries about the country’s growing deficit and debt burden. Chip Hughey, managing director for fixed income at Truist Advisory Services, called the auction “disappointing.” The 20-year Treasury yield settled at 5.047%, up from 4.83% in the previous auction, reflecting investor wariness following Moody’s recent downgrading of U.S. government debt. The auction outcome amplified Wall Street’s existing fears about Trump’s tax bill worsening the federal debt during a time of global economic uncertainty.
Investors have become cautious since Moody’s downgraded the United States’ sovereign credit rating from Aaa to Aa1, highlighting concerns over the nation’s fiscal health.
Dow’s steep drop on tax fears
John Towfighi, an economist, said, “The downgrade brings more focus on the real issues at hand: the U.S.’s growing deficit and debt burden.”
Higher bond yields tend to attract investors away from equities, putting pressure on the stock market.
The 10-year Treasury yield rose to 4.59%, its highest since February, and the 30-year Treasury yield surpassed 5%, a level not seen since 2023. Wall Street’s fear gauge, the CBOE Volatility Index, surged by over 15%, reflecting the market’s jittery sentiment. The U.S. dollar weakened slightly, sliding 0.5% against a basket of six foreign currencies.
Bitcoin experienced fluctuations, reaching an all-time high above $109,400 before settling around $107,000. The cryptocurrency has skyrocketed by more than 40% from a recent low in early April, underscoring its volatile nature. As investors grapple with the implications of the latest Treasury auction and Trump’s tax policies, the market outlook remains uncertain, highlighting the delicate balance of fiscal policy and investor confidence in the current economic climate.