Stocks head lower on US budget worries
Rising US bond yields, a reflection of worries about the worsening condition of the US government deficit, have driven stocks lower over the past 24 hours.
Rising yields cast a shadow over stocks
US stock markets came under heavy pressure yesterday thanks to rising US bond yields. An auction of US government debt saw borrowing costs head higher again as investors become more jittery about the fiscal outlook of the US government.
The latest budget plan in the US is set to add trillions to the federal deficit thanks to a wave of tax cuts. Before April, markets had been relatively forgiving, given the underlying strength of the US economy. But Donald Trump’s tariff plan has set alarm bells ringing, raising the risk of a sustained recession in the world’s largest economy. The safe-haven status of US debt is being called into question as a result.
The Dow's 800 point drop is its largest in a month, and reflects growing unease that stocks have become too complacent about the outlook for the global economy. Tariffs may have been paused for now, but they remain at a much higher level than was the case before Trump took office, and we have yet to see their impact in either corporate or economic data, beyond some efforts at quantifying the impact in some company outlooks.
European stocks fall in early trading
“The gloomy tone in the US has carried over into the European session. Equity markets do remain vulnerable in the short-term to further worries about the US economy. Economic data covering May will start to arrive from next month, providing a more up-to-date picture of how economies are faring in the new post-‘Liberation Day’ world.
Corporate news has come through thick and fast for UK investors today, including BT and easyJet. Both these names have fallen in early trading, despite reiterating current guidance. Having rebounded sharply from their August lows, most stocks face hurdles to further gains in their share price; investors now expect more in the way of good news than was the case a month ago when they were much more cautious.
While this doesn’t preclude further gains in the short-term, it does probably mean that the sharp moves higher have come to an end for the time being, and a slower and more volatile grind is more likely to be the dominant theme.
Connect with us
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Professional clients trading spread bets and CFDs can lose more than they deposit.
Options and futures are complex instruments which come with a high risk of losing money rapidly due to leverage. They’re not suitable for most investors. Before you invest, you should consider whether you understand how options and futures work, the risks of trading these instruments and whether you can afford to lose more than your original investment.
Trading stocks and shares ‘on margin’ within a US options and futures account – meaning that you only finance part of the cost of acquiring a position in a security – carries additional risks over buying securities on a fully funded basis and may result in losses exceeding your original investment. Trading on margin will also result in additional costs to you as the investor and any securities purchased using margin may be held as collateral by the lender, restricting both your rights as shareholder, and your ability to use the securities until the margin trade is closed. You should familiarise yourself with these risks before trading on margin.
The value of shares, ETFs and other ETPs bought through a share dealing account, a US options and futures account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results. Some ETPs carry additional risks depending on how they’re structured, investors should ensure they familiarise themselves with the differences before investing.
Share dealing and IG Smart Portfolio accounts provided by IG Trading and Investments Ltd, CFD accounts and US options and futures accounts are provided by IG Markets Ltd, spread betting provided by IG Index Ltd.
IG is a trading name of IG Trading and Investments Ltd (a company registered in England and Wales under number 11628764), IG Markets Ltd (a company registered in England and Wales under number 04008957) and IG Index Ltd (a company registered in England and Wales under number 01190902). Registered address at Cannon Bridge House, 25 Dowgate Hill, London EC4R 2YA. IG Markets Ltd (Register number 195355), IG Trading and Investments Ltd (Register Number 944492) and IG Index Ltd (Register number 114059) are authorised and regulated by the Financial Conduct Authority.
The information on this site isn’t directed at residents of the United States, Belgium or any particular country outside the UK and isn’t intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.