Stocks Rally as Trump Tariff Threats Temporarily Subside

The S&P 500 Index ($SPX) (SPY) today is up +0.43%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.45%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.24%.  March E-mini S&P futures (ESH25) are up +0.42%, and March E-mini Nasdaq futures (NQH25) are up +0.14%. 

Stocks are moving higher today, with the S&P 500 posting a 3-1/2 week high, the Dow Jones Industrials posting a 5-week high, and the Nasdaq 100 posting a 2-week high.  Stocks are climbing today as jitters over Trump tariff threats temporarily subsided after President Trump stopped short of imposing new tariffs on China and Europe during his first day in office.  However, Trump ordered his administration to address unfair trade practices globally and outlined plans to impose tariffs of 25% on Canadian and Mexican goods on February 1. 

T-note yields are also falling today to the benefit of stocks as the 10-year T-note yield slid to a 2-1/2 week low.  Falling inflation expectations boosted T-note prices today after crude prices tumbled to a 1-week low when President Trump said Monday that he plans to declare a national energy emergency and vowed to increase US crude production. 

Earnings season is in full swing as companies report Q4 earnings results.  According to Bloomberg Intelligence, analysts estimate S&P 500 earnings to grow 7.5% in Q4, the second-highest pre-season forecast in the past three years.

The markets are discounting the chances at 1% for a -25 bp rate cut at the January 28-29 FOMC meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down -0.19%.  China's Shanghai Composite Index closed down -0.05%.  Japan's Nikkei Stock 225 rose to a 1-week high and closed up +0.32%.

Interest Rates

March 10-year T-notes (ZNH25) today are up +9 ticks.  The 10-year T-note yield is down -6.1 bp to 4.566%.  Mar T-notes today rose to a 2-1/2 week high, and the 10-year T-note yield fell to a 2-1/2 week low of 4.528%.  T-notes are climbing today after President Trump refrained from imposing China-specific tariffs and vowed to boost US crude production, which calmed concerns his policies would boost inflation.  Also, a decline in inflation expectations supports T-notes as the 10-year breakeven inflation rate fell to a 1-1/2 week low today of 2.389%. In addition, T-notes have carryover support today from a rally in 10-year German bunds to a 2-week high.

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 2-week low of 2.495% and is down -0.5 bp to 2.521%.  The 10-year UK gilt yield is down -2.9 bp to 4.631%.

Eurozone Dec new car registrations rose +5.1% y/y to 911,000 units, the biggest increase in 8 months.

The German Jan ZEW survey expectations of economic growth fell -4.4 to 10.3, weaker than expectations of 15.1.

ECB Governing Council member Villeroy de Galhau said, "There's a plausible consensus" that the ECB will lower interest rates at each of its upcoming meetings. 

ECB Governing Council member Kazimir said a reduction in interest rates by the ECB next week is all but certain, and two to three more will probably follow.

Swaps are discounting the chances at 99% for a -25 bp rate cut by the ECB at its January 30 policy meeting.

US Stock Movers

Moderna (MRNA) is up more than +10% to lead gainers in the S&P 500 after it received an additional $590 million from the US government to accelerate the development of a bird flu vaccine. 

Charles Schwab (SCHW) is up more than +7% after reporting Q4 net revenue of $5.33 billion, stronger than the consensus of $5.19 billion.

3M Co (MMM) is up more than +5% to lead gainers in the Dow Jones Industrials after reporting Q4 adjusted EPS continuing operations of $1.68, better than the consensus of $1.66.  

Vistra Corp (VST) is up more than +3% after Evercore ISI resumed coverage of the stock with a recommendation of outperform and a price target of $202. 

Intel (INTC) is up more than +3% to lead gainers in the Nasdaq 100 after HSBC upgraded the stock to hold from reduce.

Urban Outfitters (URBN) is up more than +4% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $63. 

O'Reilly Automotive (ORLY) is up more than +2% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $1,450. 

DR Horton (DHI) is up more than +2% after reporting Q1 EPS of $2.61, stronger than the consensus of $2.38.

Apple (AAPL) is down more than -3% to lead losers in the Dow Jones Industrials after Q4 China iPhone sales fell -18% y/y, and Jeffries downgraded the stock to underperform from hold with a price target of $200.75.

Walgreens Boots Alliance (WBA) is down more than -12% to lead losers in the S&P 500 after the US Justice Department late last Friday sued the company for allegedly dispensing millions of unlawful prescriptions in violation of the Controlled Substances Act and then seeking reimbursement.

Teradyne (TER) is down more than -4% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $117. 

KeyCorp (KEY) is down more than -3% after reporting Q4 total deposits of $149.76 billion, below the consensus of $150.95 billion.

Wendy's Co (WEN) is down more than -2% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $14.

Freshworks (FRSH) is down more than -1% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $13. 

eBay (EBAY) is down more than -1% after Arete downgraded the stock to sell from neutral with a price target of $52. 

Earnings Reports (1/21/2025)

3M Co (MMM), Capital One Financial Corp (COF), Charles Schwab Corp/The (SCHW), DR Horton Inc (DHI), Fifth Third Bancorp (FITB), KeyCorp (KEY), Netflix Inc (NFLX), Prologis Inc (PLD), Seagate Technology Holdings PL (STX), United Airlines Holdings Inc (UAL).