Stocks Rally as Tariffs Delayed and Bond Yields Fall

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.88%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.24%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.58%.  March E-mini S&P futures (ESH25) are up +0.92%, and March E-mini Nasdaq futures (NQH25) are up +0.78%. 

Stocks rallied Tuesday, with the S&P 500 posting a 1-month high, the Dow Jones Industrials posting a 5-week high, and the Nasdaq 100 posting a 2-week high.  Stocks rose Tuesday 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. 

Stocks also saw support as the 10-year T-note yield slid to a 2-1/2 week low.  Falling inflation expectations boosted T-note prices Tuesday after crude prices tumbled more than -2% 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. 

Weighing on stock indexes Tuesday was the -9% plunge in Walgreens Boots Alliance after the US Justice Department sued the company late last Friday for allegedly dispensing millions of prescriptions violating the Controlled Substances Act and then seeking reimbursement.  Also, a -3% fall in Apple Tuesday undercut the overall market after Q4 China iPhone sales fell -18% y/y, and Jeffries downgraded the stock to underperform from hold.  In addition, a -2% fall in WTI crude oil to a 1-week low weighed on energy producers.

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% y/y 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 Tuesday settled mixed.  The Euro Stoxx 50 closed up +0.03%.  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) Tuesday closed up +6 ticks.  The 10-year T-note yield fell -5.9 bp to 4.568%.  Mar T-notes Tuesday rallied 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 moved higher Tuesday after President Trump refrained as yet from imposing China-specific tariffs and vowed to boost US crude production, which calmed concerns his policies would increase inflation.  Also, a decline in inflation expectations supported T-note prices as the 10-year breakeven inflation rate fell to a 1-1/2 week low of 2.389%.  In addition, T-notes had carryover support from a rally in European government bonds.  T-notes fell back from their best levels after the S$P 500 climbed to a 1-month high and curbed safe-haven demand for T-notes.

European government bond yields Tuesday moved lower.  The 10-year German bund yield fell to a 2-week low of 2.495% and finished down -1.7 bp to 2.510%.  The 10-year UK gilt yield slid to a 2-week low of 4.578% and finished down -6.9 bp to 4.590%.

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

Vistra Corp (VST) closed up more than +8% to lead gainers in the S&P 500 after Evercore ISI resumed coverage of the stock with a recommendation of outperform and a price target of $202. 

Oracle (ORCL) closed up more than +7% after President Trump announced a new investment push for AI led by Softbank, OpenAI, and Oracle that could boost Oracle's cloud-infrastructure market share from a potential $100 billion joint venture with OpenAI and Softbank. 

3M Co (MMM) closed up more than +4% 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.  

Tuesday's strength in chip stocks was positive for the overall market.  Micron Technology (MU) and ARM Holdings Plc (ARM) closed up more than +3%, and Nvidia (NVDA) closed up more than +2%.  Also, ON Semiconductor (ON), Qualcomm (QCOM), Lam Research (LRCX), Intel (INTC), KLA Corp (KLAC),  Analog Devices (ADI), and Texas Instruments (TXN) closed up more than +1%. 

Charles Schwab (SCHW) closed up more than +5% after reporting Q4 net revenue of $5.33 billion, stronger than the consensus of $5.19 billion.

Urban Outfitters (URBN) closed up more than +9% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $63. 

General Motors (GM) closed up more than +4% after Deutsche Bank upgraded the stock to buy from hold with a price target of $60.

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

Apple (AAPL) closed 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) closed down more than 9% to lead losers in the S&P 500 after the US Justice Department sued the company late last Friday for allegedly dispensing millions of prescriptions violating the Controlled Substances Act and then seeking reimbursement.

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

Energy producers and energy service providers retreated Tuesday as the price of WTI crude fell more than -2% to a 1-week low.  As a result, Devon Energy (DVN) closed down more than -3%, and APA Corp (APA), Occidental Petroleum (OXY), and Chevron (CVX) closed down more than -2%.  Also, ConocoPhillips (COP), Diamondback Energy (FANG), Haliburton (HAL), Marathon Petroleum (MPC), and Valero Energy (VLO) closed down more than -1%. 

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

Wendy's Co (WEN) closed down more than -3% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $14.

eBay (EBAY) closed down more than -2% after Arete downgraded the stock to sell from neutral with a price target of $52. 

Earnings Reports (1/22/2025)

Abbott Laboratories (ABT), Amphenol Corp (APH), Discover Financial Services (DFS), GE Vernova Inc (GEV), Halliburton Co (HAL), Johnson & Johnson (JNJ), Kinder Morgan Inc (KMI), Procter & Gamble Co/The (PG), Steel Dynamics Inc (STLD), TE Connectivity PLC (TEL), Teledyne Technologies Inc (TDY), Textron Inc (TXT), Travelers Cos Inc/The (TRV).