Market retreat on high Treasury yields

What happened: On May 19, major U.S. indices retreated, with the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average losing 0.67%, 0.84%, and 0.65% respectively. This was driven by surging Treasury yields, with the 10-year yield reaching a 16-month high of 4.685%. Micron Technology was a notable decliner, while the tech-heavy Nasdaq was particularly affected. Jerome Powell's tenure as Fed Chair ended on Friday, with Kevin Warsh taking over. Beijing blocked Nvidia's newly approved China chip sales for a trade policy review.

Market impact: Higher Treasury yields make bonds more attractive, drawing investors away from equities, particularly growth stocks. This pressure is felt across sectors, with tech stocks, which typically trade at higher valuations, being disproportionately affected. The dollar strengthened due to higher yields, making imports cheaper and potentially impacting earnings for U.S. multinationals.

What to watch next: Investors will closely monitor the 10-year Treasury yield, with further increases potentially pressuring equities. Upcoming earnings reports from tech giants like Apple and Microsoft, scheduled for late April and late April/early May respectively, could provide insight into the sector's resilience. Additionally, the next Fed meeting on May 3 will be closely watched for any signals on future interest rate hikes.