Closing Market Update

Stocks End Mixed After Treasury Yields Spike

May 28, 2024 Joe Mazzola
Disappointing auction results sent yields higher, while semiconductor strength lifted the Nasdaq Composite to a record close.

Published as of: May 28, 2024, 4:40 p.m. ET 

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(Tuesday market close) U.S. stocks ended mixed Tuesday after a disappointing Treasury auction sent yields surging higher, reinforcing expectations interest rates will remain elevated as the Federal Reserve extends efforts to subdue inflation.

Semiconductor shares extended a recent rally behind further strength in Nvidia (NVDA), helping lift the Nasdaq Composite® ($COMP) to a record and its first close above 17,000. Nvidia added 7.1% and hit a record high for the third trading day in a row.

Stocks came under pressure later in the session after weaker-than-expected demand for the Treasury's 5-year note auction pushed yields up. The 10-year Treasury note yield (TNX) climbed near 4.55%, its highest level in nearly four weeks. The jump in yields underscored upcoming inflation numbers, including Friday's Personal Consumption Expenditure (PCE) price report. 

"Friday's PCE report will be the most important release this week," said Collin Martin, director of fixed income strategy at the Schwab Center for Financial Research. Overall and core PCE rates are both expected to rise by 0.3% month over month, Martin noted. The core rate excludes food and energy prices. PCE is the Fed's preferred inflation measure.

"With inflation the key concern among policymakers and the markets these days, an upside PCE surprise would likely pull yields higher, but we don't expect that to happen," Martin said. There are several factors that can pull down inflation, and according to Martin, the disinflationary trend should continue: "We believe inflation is sticky and not stuck, but a slower pace of disinflation could end up resulting in fewer rate cuts down the road."

Here's where the major benchmarks ended:

  • The S&P 500® index (SPX) rose 1.32 points (0.02%) to 5,306.04; the Dow Jones Industrial Average® ($DJI) lost 216.73 points (0.6%) to 38,852.86; the Nasdaq Composite gained 99.09 points (0.6%) to 17,019.88.
  • The 10-year Treasury note yield jumped almost 7 basis points to 4.54%.
  • The Cboe Volatility Index® (VIX) rose 0.55 to 12.91.

Financial shares were among Tuesday's weakest performers, reflecting ideas elevated interest rates could burden bank margins. The KBW Regional Bank Index (KRX) sank 1% to its lowest close since April 30. Biotechnology and health care sectors were also under pressure.

In other markets, WTI Crude Oil (/CL) futures jumped more than 3% and ended at a four-week high above $80 per barrel ahead of next weekend's OPEC meeting, which is expected to end with no change to the cartel's production levels.

Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.

Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.

Stocks on the move

The following companies had stock price moves driven by analyst ratings, quarterly earnings, or other news:

  • Airbnb (ABNB) gained 1.8% after Wedbush upgraded the rental platform to "outperform" from "neutral," saying travel demand remains resilient.
  • Norwegian Cruise Line (NCLH) added 3.5% after Mizuho Financial Group (MFG) upgraded the stock to "buy" from "neutral," citing expectations for improved earnings growth. 
  • DraftKings (DKNG) tumbled 10%, dropping with other online betting companies after the Illinois Senate approved a budget that includes a measure that would sharply raise taxes on sports betting.
  • Southwest Airlines (LUV) dropped 1.2% after Argus Research downgraded the company to "hold" from "buy."
  • U.S. Cellular (USM) jumped 12% after the company announced T-Mobile (TMUS) will acquire its wireless operations and 30% of spectrum assets for $4.4 billion. T-Mobile shares rose 0.8%.
  • Zscaler (ZS) sank 4.4% after Wells Fargo (WFC) downgraded the cybersecurity company to "equal weight" from "overweight," saying increasing competition and the recent departure of some sales executives create potential for "sales cycle disruption."

Among other companies, Dow member Salesforce (CRM) fell 0.9% and closed near a four-week low ahead of its quarterly results, which are expected Wednesday. Several major retailers are expected to report results Thursday, including Best Buy (BBY), Costco Wholesale (COST), Dollar General (DG), Foot Locker (FL), Gap (GPS), Kohl's (KSS), and Nordstrom (JWN).

Consumer confidence posts unexpected jump

Following the three-day U.S. holiday weekend, investors face a busier economic calendar that likely will factor into the market's near-term inflation and rate outlooks ahead of the June 11–12 Federal Open Market Committee (FOMC) meeting. 

The next PCE report is particularly anticipated in part because investors will likely look for confirmation that cooler-than-expected Consumer Price Index (CPI) numbers earlier this month signal that inflation could be resuming a downward path.

In addition to the April PCE report, the government is scheduled to release its second estimate for first-quarter gross domestic product (GDP) on Thursday.

Economic numbers reported earlier Tuesday suggested consumer attitudes have improved. The Conference Board said its Consumer Confidence Index® (CCI) rose to 102.0 in May from 97.5 in April, ending a three-month slide. Analysts expected the index to decline slightly.

While consumers' assessment of current business conditions was slightly less positive than last month, "the strong labor market continued to bolster consumers' overall assessment" of current conditions, Dana M. Peterson, the Conference Board's chief economist, said in a statement.

Fewer respondents said jobs were "hard to get," which outweighed a slight decline in the number who said jobs were "plentiful," Peterson added.

The consumer confidence report added to a recent list of stronger-than-expected economic readings that have prompted investors to scale back hopes for Fed rate cuts.

Late Tuesday, traders priced just 46% odds the fed fund rate will be at least one quarter point lower following the FOMC's September meeting, down from 65% a week ago, based on the CME FedWatch Tool. The tool priced a nearly 100% chance the rate will be unchanged after the June FOMC meeting.