US stocks pulled back on Tuesday, hitting pause on a six-day rally as investor enthusiasm around easing tariffs and cooling inflation created new concerns surrounding the economy’s fiscal health and the Federal Reserve’s policy outlook.
The Dow Jones Industrial Average (DJI) slipped 0.46%, dragged down by mixed earnings from Home Depot. The S&P 500 (GSPC) fell 0.55%, ending its recent winning streak, while the Nasdaq Composite (IXIC) dropped 0.57% as tech shares lost ground. The retreat comes amid growing skepticism that recent market tailwinds are enough to sustain further gains without meaningful policy shifts or economic surprises.
Market Movers:
- Home Depot (HD): -1.02%: Home Depot shares fell after reporting mixed first-quarter results. Same-store sales missed expectations, reflecting weaker consumer demand for big-ticket home improvement projects. However, the company’s revenue slightly beat forecasts, and it reaffirmed full-year guidance, offering a sliver of reassurance despite the earnings miss.
- Uber (UBER): +1.4%: Uber continued its climb, extending gains after hitting a new all-time high on Monday. The stock has surged on stronger-than-expected quarterly results and growing investor confidence in the ride-sharing giant’s profitability path. Tuesday’s momentum was also supported by broader optimism in the tech sector earlier in the month.
- Netflix (NFLX): -0.57%: Netflix shares dipped as profit-taking set in following a recent record high. Despite the dip, the streaming leader remains one of the standout performers of the year, buoyed by solid subscriber growth and a lucrative ad-supported tier. The broader market’s retreat weighed on sentiment.
- Tesla (TSLA): +0.6%: Tesla shares resumed their rally after Elon Musk pledged to stay on as CEO for at least five more years. Investors reacted positively to the announcement, which aims to calm concerns about Musk’s growing commitments outside Tesla. The commitment comes at a time when the company is navigating increased competition and regulatory scrutiny.
- Booking Holdings (BKNG): +0.8%: Shares of Booking Holdings ticked higher, building on Monday’s record close. The travel platform is benefiting from a resurgence in international bookings and consumer appetite for summer vacations, despite inflationary pressures and lingering concerns about travel costs.
Fiscal Concerns Cause Treasury Volatility
One of the key drivers of today’s market downturn is renewed fiscal anxiety. Long-term Treasury yields edged higher, with the 30-year yield (TYX) hovering near 4.97% following Monday’s brief breakout above the psychologically significant 5% threshold. The move reflects investor unease over the US's deteriorating fiscal picture, particularly regarding Moody’s recent downgrade and President Trump’s proposed tax overhaul, which could balloon the deficit by an estimated $4 trillion.
Citi analysts warned that rising yields could spark a broader repricing of risk assets and weigh on the dollar, with heightened sensitivity to any signals from the bond market. A sustained climb above 5% on the 30-year could act as a major drag on equities, especially growth-oriented sectors that are highly sensitive to interest rate movements.
Homebuyers Push Back Against “Aspirational Pricing”
The housing market is showing signs of imbalance as sellers list aggressively, but buyers hesitate. In several markets, inventory is surging, yet sales are lagging. Nearly 25% of homes listed on Zillow in April had a price cut — the highest rate in over six years.
Sellers, still clinging to 2021-era expectations, are increasingly being forced to adjust as buyers gain leverage in a stabilizing market. In Orlando, for example, listings jumped 42% year-over-year while sales dropped 11%. This growing disconnect could start to impact broader consumer confidence and spending, especially if home prices remain elevated even as transaction volumes decline.
Growing Sentiment Risk Amid Lofty Valuations
Wall Street strategists are beginning to question whether investor sentiment has become overly optimistic. The S&P 500’s recent rally pushed it within 3% of its all-time high, fueled in part by a tech-led rebound and enthusiasm over tariff relief. But with earnings season wrapping up and Fed speakers reinforcing a cautious stance on rate cuts, some analysts see limited room for further upside.
“There’s some complacency in the market,” said Liz Ann Sonders of Charles Schwab. She warned that the rally may have overextended itself without solid macroeconomic backing. Others echoed that view, noting that while recession odds have come down, economic growth is expected to slow markedly by the end of the year.
Looking Ahead
Investors will be watching closely as several Federal Reserve officials speak later today, offering potential clues on the direction of interest rates. The Fed’s next policy moves remain uncertain, with rate cuts now unlikely before September due to lingering inflation risks and trade-driven price volatility.
Investors will also track developments on Capitol Hill as lawmakers debate Trump’s tax proposal, which could have sweeping implications for the deficit and Treasury yields. As equities flirt with record territory, sentiment remains fragile, and the next catalyst could determine whether the market breaks higher or begins a new leg lower.