Stocks are Undercut by New Tariffs

The S&P 500 Index ($SPX) (SPY) today is down -0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.31%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.23%.  March E-mini S&P futures (ESH25) are down -0.20%, and March E-mini Nasdaq futures (NQH25) are down -0.23%. 

Stocks were undercut today after President Trump said last night that he will likely impose tariffs of around 25% on US auto, semiconductor, and pharmaceutical imports by April 2.  Mr. Trump said the tariffs would be delayed until April 2 to give companies time to move production into the US so they would not be affected by the new import tariffs.  These new tariffs would add to the previously announced 25% tariffs on steel and aluminum that take effect in March, and “reciprocal tariffs” on a country-by-country basis that will be calculated and take effect by April 1.  Mr. Trump has also announced a 10% import tariff on US imports from China, and 25% tariffs on Canada and Mexico although those have been deferred until at least March 4.

Stocks are also being undercut by today’s +0.4 bp rise in the 10-year T-note yield and reduced expectations for Fed rate cuts this year due to the potential for higher inflation from tariffs.

US Jan housing starts fell -9.8% to 1.366 million, weaker than expectations for a decline to 1.390 million. That followed a revised +16.1 surge in December to 1.515 million units.  Meanwhile, Jan building permits rose +0.1% to 1.483 million, stronger than expectations of a decline to 1.460 million.

In hawkish comments released today, ECB Executive Board Member Isabel Schnabel suggested the ECB is nearing the point of pausing or halting its rate cuts.  She said ECB officials at their next meeting, where the ECB is expected to cut rates by another -25 bp, should debate whether to drop the language from their post-meeting statement that implies leaning towards another rate cut.

On the Fed front, the markets are waiting for this afternoon’s 2PM ET release of the January 28-29 FOMC meeting minutes.  The FOMC at that meeting left its federal funds target range unchanged at 4.25-4.50%, standing pat after cutting the funds rate by a total of 100 bp in second half of 2024.

The markets are discounting the chances at 2% for a -25 bp rate cut at the next FOMC meeting on March 18-19.

Overseas stock markets today are mixed.  The Euro Stoxx 50 today is down -0.98%, more than giving back the increases seen on Monday (+0.48%) and Tuesday (+0.25%).  China’s Shanghai Composite Index today closed up +0.81%.  Japan’s Nikkei Stock 225 today closed -0.27%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -2.5 ticks.  The 10-year T-note yield is up +0.4 bp at 4.554%.  March T-note prices are trading lower on new tariff threats, which are perceived as inflationary.  T-note prices are also being undercut by fears of hawkish FOMC minutes to be released later today.  T-note prices are seeing some support today from increased safe-haven with today’s sell-off in stocks.

European government bond yields are higher.  The 10-year German bund yield is up +5.5 bp at 2.549%.  The 10-year UK gilt yield is up +5.8 bp at 4.615%.

Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at the March 6 policy meeting.

US Stock Movers

Analog Devices (ADI) is up more than +3% after an above-consensus earnings report, providing some support for the overall chip sector.  Other chip stocks on the Nasdaq 100 leaderboard today include Marvell Technology (MRVL), NXP Semiconductors (NXPI), Texas Instruments (TXN), Qualcomm (QCOM), Microchip Technology (MCHP), and ON Semiconductors (ON).

Intel (INTC) is down more than -6% today, giving back part of Tuesday’s +16% surge that was driven by the report that TSMC and Broadcom are considering deals involving the breakup of Intel. 

Meta Platforms (META) is down more than -2%, adding to Tuesday’s drop of -2.56%.  Other Magnificent Seven stocks trading lower today include Amazon (AMZN), Microsoft (MSFT), and Nvidia (NVDA).  Tesla (TSLA), Alphabet (GOOG), and Apple (AAPL) are trading higher.

Cadence Design Systems (CDNS) is down more than -8% and is the largest loser in the Nasdaq 100 after delivering disappointing management guidance.

Arista Networks (ANET) is down -4% after disappointing earnings results.

Toll Brothers (TOL) is down more than -5% after reporting revenue and unit home sales that were below the market consensus.

Etsy (ETSY) is down -5% after reporting a sales miss.

Earnings Reports (2/19/2025)

Garmin Ltd (GRMN), Charles River Laboratories Int (CRL), Trimble Inc (TRMB), Analog Devices Inc (ADI), American Water Works Co Inc (AWK), CF Industries Holdings Inc (CF), Host Hotels & Resorts Inc (HST), ANSYS Inc (ANSS), Nordson Corp (NDSN), Texas Pacific Land Corp (TPL).