[New York Stock Market] Rally Pauses for a Breather... S&P Falls After 7 Sessions as Tech Stocks Sold Off

S&P 500 up 20% in the past month
Short-term overbought signals a market pause
Musalem: "Tariffs expected to slow economy and labor market"

All three major U.S. stock indexes closed lower on May 20 (local time) in New York. Despite gains the previous day following Moody's downgrade of the U.S. credit rating, the market saw a pause as investors took profits, particularly in technology stocks.

Reuters Yonhap News

On this day, the Dow Jones Industrial Average, which focuses on blue-chip stocks, closed at 42,677.24, down 114.83 points (0.27%) from the previous session. The S&P 500, which tracks large-cap stocks, fell 23.14 points (0.39%) to 5,940.46. The tech-heavy Nasdaq dropped 72.75 points (0.38%) to finish at 19,142.71. With this, the S&P 500 ended a six-session winning streak and declined for the first time in seven trading days.

By sector, technology stocks declined. Nvidia fell by 0.88%. Apple dropped 0.92%, and Microsoft (MS) slipped 0.15%. Tesla rose 0.51% after CEO Elon Musk pledged to continue leading the company for the next five years. Home Depot, the largest U.S. home improvement retailer, declined 0.61% even though the company maintained its annual earnings outlook for this year.

The market had recently rebounded following a U.S.-China trade agreement, after previously coming under pressure due to aggressive tariff policies and concerns over an economic slowdown. The S&P 500 has surged nearly 20% over the past 27 trading sessions and is approaching its previous record high. Although Moody's downgraded the U.S. sovereign credit rating from the top 'Aaa' to 'Aa1' on May 16, investors reacted calmly, with the market even rising the previous day.

Matt Maley, chief market strategist at Miller Tabak, said, "There is no doubt that the momentum in the stock market is quite strong," but added, "The market is overbought in the short term, so it could easily take a breather at any time." He also predicted, "If this pause does not turn into a serious reversal, the market is likely to test all-time highs again soon."

However, uncertainty over tariffs persists, and concerns about stagflation?rising prices amid economic stagnation?are also mounting, adding to instability. Alberto Musalem, President of the Federal Reserve Bank of St. Louis, said at an event in Minneapolis, "Overall, tariffs are likely to weaken economic activity and further slow the labor market." He added, "Despite the easing of tensions from the U.S.-China trade agreement on May 12, tariffs will still have a significant impact on the short-term economic outlook." He emphasized, "Now is the time to maintain public confidence in the fight against inflation," and stated that, for the time being, priority should be given to price stability over responding to an economic slowdown.

Bill Northey, investment director at U.S. Bank Wealth Management, commented, "We initially swooned after the introduction of tariffs, then sharply rebounded as tensions over tariff implementation eased, and now we are waiting for clear results from ongoing negotiations." He added, "Investors are trapped in optimism without clarity."

U.S. Treasury yields are mixed within a narrow range. The yield on the U.S. 10-year Treasury, the global benchmark, is unchanged from the previous session at 4.48%. The yield on the 2-year Treasury, which is sensitive to monetary policy, is down 1 basis point (1bp = 0.01 percentage point) to 3.97%.

The dollar is weaker. The dollar index, which measures the value of the U.S. dollar against six major currencies, is down 0.39% from the previous day at 99.88.