The Dow plunged 817 points, or 1.91%, on Wednesday as worries grew about the impact of President Donald Trump’s proposed tax bill on American assets. The S&P 500 dropped 1.61%, and the tech-focused Nasdaq Composite fell 1.41%, marking the worst day for all three major indexes in a month. The downturn was sparked by weak demand in a 20-year Treasury note auction, which pushed bond yields higher.
Investors are concerned about the potential effects of Trump’s tax plan on the federal deficit and national debt. The recent auction saw $16 billion in 20-year bonds sold, with yields settling above 5%, indicating that investors are requiring higher rates to hold US debt. Chip Hughey, managing director for fixed income at Truist Advisory Services, called the auction “disappointing.”
The situation worsened after Moody’s downgraded the United States’ credit rating on Friday, removing its last perfect rating.
Dow plunges amid tax bill fears
Bond prices and yields move in opposite directions, and on Wednesday, the yield on the 10-year Treasury note climbed to 4.59%, the highest since February, while the 30-year Treasury yield surpassed 5%, the highest since 2023. Republican discussions about President Trump’s tax bill have not reassured global investors.
Hughey commented, “Recent budget deliberations in Washington are not offering global investors much solace that these challenges are being incorporated into the decision-making process.”
The US federal debt-to-GDP ratio has reached alarming levels, hitting 123% in 2024, a significant increase from 104% in 2017, according to the Treasury Department. Alan Auerbach, an economics professor at UC Berkeley, stressed the unprecedented nature of these numbers. Other market reactions included a more than 15% jump in the CBOE Volatility Index, Wall Street’s fear gauge, and a 0.5% decline in the US dollar index, which gauges the dollar’s strength against major foreign currencies.
Bitcoin reached a record high of over $109,400 before stabilizing around $107,000. Wednesday’s market activity highlights the uncertainty and volatility investors face as they navigate the consequences of President Trump’s tax plan and the downgrade of the US credit rating.
