Stocks Retreat on Tariff Anxiety

The S&P 500 Index ($SPX) (SPY) Friday closed down -0.50%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.75%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.14%.  March E-mini S&P futures (ESH25) are down by -0.53%, and March E-mini Nasdaq futures (NQH25) are down by -0.20%. 

Stocks on Friday gave up an early rally and settled moderately lower. Long liquidation in stocks emerged Friday afternoon when the White House denied a Reuters report that President Trump would delay tariffs against Canada and Mexico until March 1.  The White House said Friday afternoon that President Trump plans to move ahead with plans on Saturday to impose 25% tariffs on Mexico and Canada and a 10% tariff on China.  Also, a jump in T-note yields Friday undercut chip stocks and weighed on the broader stock market.

Stock indexes on Friday initially moved higher, with the Dow Jones Industrials posting an 8-week high on strong corporate earnings from Apple, Intel, and Atlassian.  Stocks also garnered support from Friday's US economic news that showed Dec personal spending rose more than expected, and the Dec core PCE price index, the Fed's preferred inflation gauge, was in line with estimates.

Hawkish Fed comments Friday were negative for stocks and bonds.  Fed Governor Bowman said, "I would like to see progress in lowering inflation resume before we make further adjustments to the fed funds target range." Also, Chicago Fed President Goolsbee said he has "comfort" that US inflation is on a path to 2%, but it makes sense to slow the pace or rate reductions as the Fed nears the neutral rate.

US Dec personal spending rose +0.7% m/m, stronger than expectations of +0.5% m/m.  Dec personal income rose +0.4% m/m, right on expectations.

The US Dec core PCE price index, the Fed's preferred inflation gauge, rose +0.2% m/m and +2.8% y/y, right on expectations.

The US Q4 employment cost index rose +0.9%, right on expectations.

The US Jan MNI Chicago PMI rose +2.5 to 39.5, weaker than expectations of 40.0.

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

The markets are discounting the chances at 19% for a -25 bp rate cut at the next FOMC meeting on March 18-19.

Overseas stock markets Friday settled higher.  The Euro Stoxx 50 rallied to a fresh 24-year high and closed up +0.09%.  China's Shanghai Composite Index did not trade Friday and will be closed through next Tuesday for the week-long Lunar New Year holiday.  Japan's Nikkei Stock 225 closed up +0.15%.

Interest Rates

March 10-year T-notes (ZNH25) Friday closed down -12.5 ticks.  The 10-year T-note yield rose +5.1 bp to 4.567%.  March T-notes retreated Friday after the White House said President Trump would go ahead with plans Saturday to impose a 25% tariff on goods from Canada and Mexico and a 10% levy on China, which could boost inflation and be hawkish for Fed policy.  Also, hawkish Fed comments Friday from Fed Governor Bowman and Chicago Fed President Goolsbee weighed on T-notes when they signaled a gradual approach to cutting interest rates. 

T-notes had some carryover support from a Friday rally in European government bonds.  Also, inflation concerns eased after the US Q4 employment index and the Dec core PCE price index, the Fed's preferred inflation gauge, were in line with estimates.

European government bond yields on Friday moved lower.  The 10-year German bund yield fell to a 3-1/2 week low of 2.452% and finished down -5.9 bp to 2.460%.  The 10-year UK gilt yield dropped to a 6-week low of 4.514% and finished down -2.2 bp to 4.538%.

ECB Dec 1-year inflation expectations increased to a 5-month high of +2.8% from +2.6% in Nov, stronger than expectations of +2.7%.  The Dec 3-year inflation expectations were unchanged from Nov at +2.4%, right on expectations.

German Dec retail sales unexpectedly fell -1.6% m/m, weaker than expectations of no change and the biggest decline in 2 years.

The German Jan unemployment rate unexpectedly rose +0.1 to a 4-year high of 6.2%, showing a weaker labor market than expectations of no change at 6.1%.

Swaps are discounting the chances at 21% for a -25 bp rate cut by the ECB at the March 6 policy meeting.

US Stock Movers

Chip stocks retreated Friday as T-note yields rose.  Nvidia (NVDA) closed down more than -3% to lead losers in the Nasdaq 100.  Also, Intel (INTC) and Advanced Micro Devices (AMD) closed down more than -2%.  In addition, ON Semiconductor (ON), Microchip Technology (MCHP), NXP Semiconductor NV (NXPI), and Micron Technology (MU) closed down more than -1%. 

Deckers Outdoor (DECK) closed down more than -20% to lead losers in the S&P 500 after forecasting full-year net sales of $4.90 billion, below the consensus of $4.93 billion. 

Walgreens Boots Alliance (WBA) is down more than -10% after suspending its quarterly dividend to conserve cash and strengthen its balance sheet.

PPG Industries (PPG) closed down -6% after reporting Q4 adjusted EPS of $1.61, weaker than the consensus of $1.65, and forecast 2025 adjusted EPS of $7.75-$8.05, well below the consensus of $8.69.

WW Grainger (GWW) closed down more than -5% after forecasting 2025 net sales of $17.6 billion-$18.1 billion, weaker than the consensus of $18.17 billion.

Colgate-Palmolive (CL) closed down more than -4% after reporting Q4 net sales of $4.94 billion, weaker than the consensus of $4.97 billion, and forecast 2025 organic sales to climb +3% to +5%, the midpoint below the consensus of +4.41%.

Chevron (CVX) closed down more than -4% to lead losers in the Dow Jones Industrials after reporting Q4 adjusted EPS of $2.06, weaker than the consensus of $2.11. 

Occidental Petroleum (OXY) closed down more than -4% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $45.

Autoliv (ALV) closed down more than -4% after reporting Q4 sales of $2.62 billion, weaker than the consensus of $2.73 billion. 

Franklin Resources (BEN) closed up more than +10% to lead gainers in the S&P 500 after reporting Q1 operating revenue of $2.25 billion, above the consensus of $1.96 billion and said in a conference call that Western Asset Management outflows will "meaningfully" slow in January from the Q1 $68 billion level. 

Eastman Chemical (EMN) closed up more than +7% after reporting Q4 adjusted EPS of $1.87, stronger than the consensus of $1.57.

Atlassian (TEAM) closed up more than +14% to lead gainers in the Nasdaq 100 after reporting Q2 revenue of $1.29 billion, better than the consensus of $1.24 billion and raised its full-year revenue estimate to up +18.5% to +19.0% from a previous estimate of +16.5% to +17.0%. 

Vertex Pharmaceuticals (VRTX) closed up more than +5% after receiving FDA approval for its non-opioid analgesic Journavx to treat moderate-to-severe acute pain in adults. 

AbbVie (ABBV) closed up by more than +4% after reporting Q4 adjusted EPS of $2.16, better the consensus of $2.13, and forecast 2025 adjusted EPS of $12.12-$12.32, the midpoint above the consensus of $12.13.

Baker Hughes (BKR) closed up more than +3% after reporting Q4 revenue of $7.36 billion, better than the consensus of $7.07 billion.

Electronic Arts (EA) closed up more than +3% after Moffett Nathanson upgraded the stock to buy from neutral with a price target of $145. 

Charter Communications (CHTR) closed up more than +2% after reporting Q4 adjusted Ebitda of $5.80 billion, stronger than the consensus of $5.72 billion.

LPL Financial Holdings (LPLA) closed up more than +1% after reporting Q4 total net new assets of $157.3 billion, well above the consensus of $106.1 billion. 

Earnings Reports (2/3/2025)

Clorox Co/The (CLX), Equity Residential (EQR), Everest Group Ltd (EG), Healthpeak Properties Inc (DOC), IDEXX Laboratories Inc (IDXX), NXP Semiconductors NV (NXPI), Palantir Technologies Inc (PLTR), Tyson Foods Inc (TSN).