On Wednesday, May 21, 2025, U.S. stocks tumbled hard, marking the worst day for major indexes in a month. The Dow Jones dropped a staggering 816 points, or 1.91%, while the S&P 500 lost 1.61% and the Nasdaq slid 1.41%.

Even small caps weren’t spared, with the Russell 2000 posting its sharpest drop since April 10.

So what exactly rattled the markets this time?

Debt Drama in Washington is Spooking Investors

At the heart of this selloff is growing anxiety over U.S. government debt.

Investors are reacting to reports that President Donald Trump’s proposed tax-cut bill could balloon the national debt by up to $5 trillion. Nonpartisan analysts warned the bill might push the already massive $36.2 trillion debt into even more dangerous territory.

This triggered a spike in Treasury yields, with the 10-year note rising 10.8 basis points to 4.589%, its highest since mid-February. A weak showing at the Treasury Department’s 20-year bond auction only fueled the fire.

Wolfspeed’s Near-Collapse Sends Shockwaves

One of the biggest headlines is that Wolfspeed (WOLF.N) plunged nearly 60% after reports that the semiconductor company is prepping for bankruptcy within weeks.

Yes, you read that right, 60%.

Once a promising player in chip manufacturing, Wolfspeed’s potential collapse is a major blow, especially with ongoing semiconductor demand and supply chain concerns.

Target Slashes Forecast as Consumers Cut Back

Target (TGT.N) also rattled the market after cutting its annual forecast. Shoppers are pulling back on discretionary spending, such as on electronics, home goods, and apparel.

The retail giant fell 5.2%, sparking worries across the consumer sector. If Target feels the heat, you can bet other retailers might be next.

UnitedHealth Caught in a Secret Payment Scandal

It doesn’t stop there. UnitedHealth Group (UNH.N) plunged nearly 6% after The Guardian reported the company made secret bonus payments to nursing homes to reduce hospital transfers.

To make matters worse, HSBC downgraded UnitedHealth stock from “hold” to “reduce,” citing reputational and legal risks.

Healthcare stocks, along with real estate, financials, and utilities, were among the hardest hit on the S&P 500.

There Weren’t Many Winners, But Alphabet Stood Out

It wasn’t all red on Wall Street. Google parent Alphabet (GOOGL.O) managed to gain 2.7%, offering a rare bright spot.

Other big names were not so lucky. Nvidia (NVDA.O) dropped 1.9%, while Apple (AAPL.O) fell 2.3%, and Tesla (TSLA.O) shed 2.7%.

Clearly, not even tech darlings were safe from the broader selloff.

10 of 11 S&P 500 sectors closed lower. Decliners outpaced gainers almost 6-to-1 on the NYSE.

And Volume surged to 19.39 billion shares, above the recent average.

Despite the chaos, Morgan Stanley upgraded U.S. equities to “overweight,” arguing that the global economy, while slow, is still expanding.

If You’re a Trader or Long-Term Investor…

Debt headlines matter, especially when they can move Treasury yields.

Remember that consumer behavior is shifting, which could pressure retail and discretionary stocks.

Also, watch your healthcare holdings, and stay informed and diversify because volatility like this can also create opportunities.

And most importantly, keep emotions in check. As Michael Farr noted, not every headline spells disaster, but markets will react first and analyze later.