Stocks Pressured by Fears of a Tariff-Induced Slowdown

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.17%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.38%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.18%.  June E-mini S&P futures (ESM25) are down -0.21%, and June E-mini Nasdaq futures (NQM25) are up +0.15%. 

Stock indexes on Tuesday whipsawed between gains and losses in volatile trade and finally settled mixed.  Bank stocks rose Tuesday to boost the broader market, led by a +3% jump in Bank of America after reporting better-than-expected Q1 net interest income.  Stocks also found support in hopes that President Trump will adopt a softer stance toward his tariff policies.  On Monday, President Trump said he is exploring possible temporary exemptions to tariffs on imported vehicles and parts to give auto companies more time to set up US manufacturing. 

Lower T-note yields Tuesday supported stocks, as the 10-year T-note yield fell -4.1 bp to 4.333%.  T-note yields fell Tuesday after Deputy Treasury Secretary Faukender said a rule change was under consideration that could lower trading costs for banks.  The regulation known as the Supplementary Leverage Ratio (SLR) came into effect in 2018 and doesn't have risk weightings for assets, which means it applies evenly to US government debt.  Banks have argued the capital rule reduces their ability to add Treasuries in stressful times, as they are treated the same as much riskier assets.  The SLR was lifted during the Covid crisis to boost liquidity in the Treasury market but has since been reinstated.

Today's US economic news was better than expected and bullish for stocks.  The Apr Empire manufacturing survey general business conditions rose +11.9 to -8.1, stronger than expectations of -13.5.  Also, the Mar import price index ex-petroleum was unchanged m/m, weaker than expectations of +0.3% m/m.

However, stocks fell back from their best levels Tuesday and turned mixed after European Union (EU) trade chief Sefvovic said the EU and US had made little progress in bridging trade differences.  The EU has offered that both sides remove all tariffs on industrial goods, including cars.  However, the US has so far rejected that proposal.  Stock gains were also limited due to concerns about the tit-for-tat US-China trade war.  Boeing fell more than -2% after Bloomberg reported that China had ordered its airlines not to take any further deliveries of Boeing's jets.  Also, the US Commerce Department said late Monday that it had initiated probes into the national security impact of semiconductor and pharmaceutical imports, a precursor to imposing tariffs.

Comments Monday evening from Atlanta Fed President Bostic suggest he favors the Fed keeping monetary policy steady when he said, "The specific place that the economy will land depends critically on the details of where policy lands." Therefore, the Fed must wait for further clarity on President Trump's policies before adjusting interest rates.

Last Friday, President Trump said he would temporarily exempt consumer electronics from reciprocal tariffs and the baseline 10% global tariffs. However, a 20% tariff still applies to electronics shipped from China.  Last Wednesday, President Trump announced a 90-day pause on higher reciprocal tariffs on 56 nations but left the new 10% baseline tariff on virtually all nations in place.  Meanwhile, the EU last Thursday said it will delay for 90 days the implementation of 25% tariffs on 21 billion euros worth of US goods sent to Europe.

Stocks have been under pressure over the past five weeks due to fears that US tariffs will weaken economic growth and corporate earnings. On March 4, President Trump imposed 25% tariffs on Canadian and Mexican goods and doubled the tariff on Chinese goods to 20% from 10%.  On April 2, President Trump signed a proclamation to implement a 25% tariff on US auto imports.  The tariffs will initially target vehicles fully assembled outside the US and, by May 3, will expand to include automobile parts made outside the US.  Mr. Trump said the tariffs were "permanent," and he was not interested in negotiating any exceptions.  On April 5, a 10% baseline tariff for virtually all nations took effect.  Last Friday, China raised tariffs on all US goods to 125% from 84% in retaliation for the US raising tariffs on Chinese goods to 145%. 

The US tariff turmoil has undercut the dollar and boosted gold.  The dollar index last Friday sank to a 3-year low, and gold prices soared to an all-time high.  The markets are concerned about the effects of US trade policies, which have caused consumer confidence to plummet and have prompted many companies to suspend their capital spending plans, a negative factor for GDP growth.  Also, the dollar is facing a confidence crisis as the US weaponizes tariffs, diminishing the dollar's reserve-currency status and prompting some foreign investors to liquidate their dollar assets. 

The markets will focus on US trade policy news during this holiday-shortened week.  On Wednesday, US March retail sales are expected to climb +1.4% m/m, and March retail sales ex-autos are expected to climb +0.4% m/m.  Also, on Wednesday, March manufacturing production is expected to be up +0.3% m/m.  Finally, on Wednesday, Fed Chair Powell will speak before the Economic Club of Chicago about the economic outlook.  On Thursday, Mar housing starts are expected to fall -5.7% m/m to 1.416 million, and Mar building permits are expected -0.6% m/m to 1.450 million.

The markets are discounting the chances at 20% for a -25 bp rate cut after the May 6-7 FOMC meeting.

Q1 earnings reporting season began last Friday as big US banks reported their results.  According to data compiled by Bloomberg Intelligence, the market consensus is for Q1 year-over-year earnings growth of +6.7% for the S&P 500 stocks, down from expectations of +11.1% in early November.  Full-year 2025 corporate profits for the S&P 500 are seen rising +9.4%, down from the forecast of +12.5% in early January. 

Overseas stock markets on Tuesday settled higher.  The Euro Stoxx 50 closed up +1.20%.  China's Shanghai Composite closed up +0.15%.  Japan's Nikkei Stock 225 closed up +0.84%.

Interest Rates

June 10-year T-notes (ZNM25) Tuesday closed up +10.5 ticks.  The 10-year T-note yield fell -4.1 bp to 4.333%.  June T-notes on Tuesday settled higher on signs of easing price pressures after the US Mar import price index ex-petroleum rose less than expected.  T-notes also rose after Deputy Treasury Secretary Faukender said a rule change was under consideration that could lower trading costs for banks, which could boost liquidity in the Treasury market. 

However, gains in T-notes are limited due to carryover weakness in 10-year German bunds.  Also, Monday night's comments from Atlanta Fed President Bostic weighed on T-notes when he said he favored keeping interest rates at current levels due to the uncertainties of US trade policies. 

European bond yields on Tuesday were mixed.  The 10-year German bund yield rose +2.3 bp to 2.534%.  The 10-year UK gilt yield fell -1.2 bp to 4.648%.

Eurozone Feb industrial production rose +1.1% m/m, stronger than expectations of +0.3% m/m and the largest increase in 6 months.

The German Apr ZEW survey expectations of economic growth fell -65.6 to a 1-3/4 year low of -14.0, weaker than expectations of 10.0.

Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

US Stock Movers

Bank stocks rose Tuesday, led by a +3% jump in Bank of America (BAC) after reporting Q1 net interest income of $14.44 billion, better than the consensus of $14.36 billion.  Also, Wells Fargo (WFC) closed up more than +2%, and Citigroup (C), Morgan Stanley (MS), Huntington Bancshares (HBAN), Fifth Third Bancorp (FITB), KeyCorp (KEY), and M&T Bank (MTB) closed up more than +1%. 

Rocket Lab (RKLB) closed up more than +10% after it was selected to provide hypersonic test launch capability through development programs in the US and UK. 

Hewlett Packard Enterprise (HPE) closed up more than +5% after Elliott Investment Management said it had built a $1.5 billion stake in the company.

Netflix (NFLX) is up more than +4% after a Wall Street Journal report said the company aims to double its revenue and reach a $1 trillion market capitalization by 2030. 

MercadoLibre (MELI) closed up more than +3% after Benchmark Co. initiated coverage on the stock with a buy recommendation and a price target of $2,500. 

KKR & Co (KKR) closed up more than +1% after HSBC upgraded the stock to buy from hold with a price target of $119. 

Allegro Microsystems (ALGM) closed down more than -9% after ON Semiconductor withdrew its $6.9 billion bid to acquire the company.

Boeing (BA) closed down more than -2% to lead losers in the Dow Jones Industrials after Bloomberg reported that China had ordered its airlines not to take any further deliveries of Boeing's jets. 

Dow Inc (DOW) closed down more than -3% after Bank of America Global Research double-downgraded the stock to underperform from buy with a price target of $28. 

Howmet Aerospace (HWM) closed down more than -2% after Wells Fargo Securities downgraded the stock to equal weight from overweight.

Bristol Myers Squibb (BMY) closed down more than -2% after announcing a late-stage trial evaluating its drug Camzyos for a non-obstructive form of a heart disease failed.

Air Products & Chemicals (APD) closed down more than -2% after Bank of America Global Research downgraded the stock to underperform from neutral.

Earnings Reports (4/16/2025)

Abbott Laboratories (ABT), Alcoa Corp (AA), Bank OZK (OZK), Citizens Financial Group Inc (CFG), Commerce Bancshares Inc/MO (CBSH), CSX Corp (CSX), First Horizon Corp (FHN), First Industrial Realty Trust (FR), FNB Corp/PA (FNB), Kinder Morgan Inc (KMI), Progressive Corp/The (PGR), Prologis Inc (PLD), Rexford Industrial Realty Inc (REXR), Synovus Financial Corp (SNV), Travelers Cos Inc/The (TRV), US Bancorp (USB).