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The Dow Jones Industrial Average looked sickly yesterday because of UnitedHealth Group (UNH). The rest of the market, however, had a healthy outing, supported by mega-cap leadership, short-covering activity, price chasing, a business-friendly and growth-oriented focus during President Trump's trip to Saudi Arabia, and a continued sense of relief about the tariff de-escalation between the U.S. and China.
Yesterday's gains tipped the S&P 500 back into positive territory for the year. It is a scant 0.1% gain, yet that represents a huge shift in sentiment considering the S&P 500 had been down 17.8% for the year as recently as April 7.
The equity futures market isn't succumbing to selling interest just yet either. The S&P 500 futures are up 11 points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 50 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 40 points and are trading 0.1% above fair value.
This bid has been supported by a 2.7% gain in NVIDIA (NVDA), which is riding on continued momentum surrounding the AI trade, and a 2.7% gain in Tesla (TSLA) that comes amid an FT report that Tesla's Board of Directors is considering a new pay package for Elon Musk. Those gains are easily offsetting a 13% drop in American Eagle Outfitters (AEO), which reported some sales struggles in Q1 and withdrew its full-year guidance due to macro uncertainty and as it reviews forward plans in the context of its Q1 results.
Additionally, there has been attention paid to the tax package negotiations in the House. The House Ways and Means Committee voted to advance the large reconciliation bill by a party-line vote of 26-19. House Speaker Johnson hopes to have final passage of the bill before Memorial Day.
The Joint Committee on Taxation (JCT) estimates that the package will add $3.7 trillion to the deficit between 2025 and 2034; however, that number could rise if the SALT deduction provision is increased further to win the GOP votes needed to secure passage of the "big, beautiful bill."
We shall see what happens. The stock market likes the sound of tax cuts, but the ultimate question is, will the Treasury market like the forecast for an increase in the deficit?
The 10-yr note yield climbed to 4.50% yesterday as stocks were rising, so it was difficult to divine if that move was a reallocation trade out of Treasuries into a red-hot stock market or if it was the vestiges of deficit concerns stemming from the JCT's forecast.
The stock market's rally is commanding all the attention, but rest assured the Treasury market is going to have a say in whether that rally continues unabated. The 2-yr note yield is currently down one basis point to 4.01%, and the 10-yr note yield is down one basis point to 4.49%.
A stretch above 4.50% by the 10-yr note and a move above 5.00% for the 30-yr bond are apt to create some headwinds for a stock market that is again trading at 21.4x forward twelve-month earnings, which is a 17% premium to the 10-yr average, according to FactSet, at a time when the growth outlook is clearly not without its challenges.
