US S&P 500 and Nasdaq Fall for Third Straight Session
US stock indices ended trading on May 19 in the red, with the S&P 500 and Nasdaq Composite declining for the third consecutive session. The Dow Jones Industrial Average also fell 0.65% to 49,363.88 points.
The market is falling for the third straight session, and headlines are full of words like "correction" and "profit-taking." But that's just the surface. In reality, we are witnessing a fundamental shift in the architecture of global capital: the 40-year cycle of falling interest rates is ending before our eyes, and the stock market, mesmerized by the magic of AI multipliers, is still refusing to accept the new reality. The S&P 500 lost a modest 0.67% in the session, falling to 7,353 points, while the Nasdaq Composite plunged 0.84%. But the real drama is unfolding not in stocks, but in the bond market, where the yield on 30-year Treasuries broke through 5.12%—a level not seen since 2007.
The Core: What's Really Happening
The essence of what's happening is not the decline in indices, but the collapse of the "TINA" concept (There Is No Alternative). For the first time in two decades, institutional capital has a real, mathematically sound alternative in the form of virtually risk-free long-term US government bonds yielding over 5%. When 30-year bonds offer 5.12% annually with full government backing, discounting future cash flows of tech companies at this rate makes their current valuations absurdly overvalued. This is not a correction of overbought conditions—it's the beginning of a great rotation from duration assets to fixed-income assets, which will primarily hit growth companies.
Timeline and Context
Let's trace the triggers. On Friday, May 15, the yield on 30-year Treasuries breached the psychological level of 5.12%, triggering algorithmic profit-taking in the tech sector. Institutional investors using margin loans backed by long Treasuries faced margin calls as the value of their bond collateral fell. By Monday-Tuesday, a wave of forced selling spread to stocks: traders sold their most liquid positions to cover margin requirements. This explains the targeted nature of selling in Nvidia (-0.8% on Tuesday), which is the largest source of liquidity in the market.
Formally, the indices lost little over three sessions, but beneath the surface lies a brutal selection: companies with negative earnings and high multiples lost 3-4 times more than the average. The yield reversal created an environment where institutional portfolio managers are forced to reduce their allocation to growth stocks simply because their models show negative expected returns relative to the risk-free rate over a 10-year horizon.
Who Wins and Who Loses
Losers are obvious—the hyper-growth tech sector. Cathie Wood and her followers, who bet on the long duration of innovative companies, are losing capital at an accelerated pace. But the main non-obvious victim is the venture capital industry. With 30-year bond yields at 5.12%, the model of lump-sum investing in startups expecting an IPO in 7-10 years mathematically stops working. Funds that raised capital under AI strategies will now face the impossibility of delivering returns above the risk-free rate over the long term.
Winners are the energy sector and commodity producers with pricing power in an inflationary environment. Historical data since 1980 shows that in 74% of inflationary cycles, energy and infrastructure stocks outperform the market. Dividend aristocrats with payout growth rates of 8-15% per year deserve special mention—their cash flows, discounted at the new rates, remain attractive.
What the Media Isn't Saying
The key non-obvious insight: Kevin Warsh, whose inauguration as Fed Chair is in two days on May 22, may resort to emergency hawkish rhetoric—or even a rate hike—precisely to stop the surge in long Treasury yields. Economist Ed Yardeni noted in a memo on May 18 that a "hawkish" surprise from the Fed could paradoxically lower long-term bond yields by convincing "bond vigilantes" that the central bank has inflation under control.
The FedWatch tool shows a 50-60% probability of a 25 basis point rate hike by year-end. Meanwhile, core PCE rose to 3.2% in March, and CPI jumped to 3.8%—and this is before the energy shock is fully reflected in April data. The inflation peak is still ahead, meaning pressure on Treasuries will persist. Key point: the Fed may raise rates not despite White House pressure for cuts, but precisely to keep long-term yields from rising further and protect the mortgage and corporate debt markets.
A second point that goes unmentioned: the rise in yields is global. UK 30-year gilts reached a yield of 5.8%, Japanese government bonds 3.8%. This indicates a systemic, not local, inflationary regime and rules out "flight to quality" as a hedging strategy for US investors.
Forecast: Next 30 Days and 90 Days
Over the next 30 days, the S&P 500 will likely test the support zone of 7,000-7,100 points. Key events: the release of April PCE on May 28 (I expect acceleration to 3.5-3.7% annualized), and the FOMC meeting on June 16-17, where Warsh will set the tone for years to come. If rhetoric is tougher than expected, a 5-7% impulsive drop in the index is possible, followed by stabilization.
Over a 90-day horizon, the scenario depends on geopolitics. If the Strait of Hormuz remains closed, Brent oil could test $130 per barrel, locking inflation at 4%+ levels and driving the S&P 500 down to 6,500 points with a P/E multiple below 18. However, the baseline scenario is a sideways range of 6,800-7,400 with a gradual shift in leadership from tech to energy and commodities.
Editorial Forecast
Asset: NASDAQ-100 (ticker NDX); direction — down over the next 24-72 hours. The index, which closed at 25,870, will likely test the support zone of 25,200-25,400 amid continued rise in Treasury yields and profit-taking ahead of Warsh's inauguration. Key trigger: a break of the 10-day exponential moving average on the S&P 500, which served as reliable support throughout April. Confidence level — medium. The main risk is an unexpected ceasefire announcement in the Iran-US conflict, which could simultaneously crash oil by 15-20% and trigger a sharp rebound in risk assets. This is the editorial opinion, not an investment recommendation.
— Editorial Team
