Dow Jones| Nasdaq | S&P 500 | US Stock Market Today |Highlights: US stocks slip as higher Treasury yields weigh on sentiment

U.S. equities retreated on Tuesday, with all three major indices ending the session in negative territory as a surge in Treasury yields soured investor sentiment. The bond market sell-off was triggered by surprisingly robust economic reports, reinforcing the view that the Federal Reserve may have little incentive to lower interest rates in the near future.

Economic Data Fuels Rate Concerns

The catalyst for the market's downturn came from fresh government data pointing to underlying strength in the American economy. Job openings unexpectedly increased in April, while new orders for manufactured goods rose for the third consecutive month. While typically positive signs, these figures suggest that economic activity remains too strong for the central bank to confidently begin its monetary easing cycle, raising concerns about sustained inflationary pressures.

Shifting Rate Cut Expectations

The resilient economic data prompted a swift repricing of interest rate expectations among traders. The probability of a Federal Reserve rate cut by its September meeting fell to approximately 59%, a noticeable drop from about 66% just a week prior, according to the CME FedWatch tool. This shift underscores the market's growing acceptance that borrowing costs will remain elevated for longer than previously anticipated.

Sector and Stock Performance

The impact of higher yields was felt across most of the market, with the energy and materials sectors leading the declines among the S&P 500's 11 major groups. In contrast, the real estate sector emerged as the day's top performer. On the corporate front, Bath & Body Works shares tumbled after the retailer cut its annual profit forecast. Conversely, Paramount Global saw its stock climb following reports of a substantial takeover offer from Skydance Media, while Intel shares fell after the company detailed losses in its foundry business.

Future Outlook

Investors are now turning their attention to the week's most anticipated economic release: the non-farm payrolls report due on Friday. This comprehensive employment data will provide a critical update on the health of the labor market and will be instrumental in shaping the Federal Reserve's policy outlook in the coming months. The market's direction will likely hinge on whether the jobs data signals an economy that is cooling enough to warrant a rate cut.