Stocks Tumble on Earnings and US Stagflation Risks

The S&P 500 Index ($SPX) (SPY) today is down -1.80%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.37%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -2.26%.  June E-mini S&P futures (ESM25) are down -1.93%, and June E-mini Nasdaq futures (NQM25) are down -2.36%. 

Stock indexes today are sharply lower, weighed down by some negative corporate news and weak economic news.  Super Micro Computer is down more than -17% to weigh on tech stocks after reporting preliminary Q3 results that missed expectations.  Also, Norwegian Cruise Line Holdings is down more than -11% after saying it saw “softening” in its 12-month forward bookings.  

Stocks extended their losses on stagflation risks after the US economy in Q1 contracted at the steepest pace in 3 years and the Q1 core PCE price index rose more than expected.  Also, signs of labor market weakness undercut stocks after the April ADP employment change showed employers added fewer jobs than expected.  The markets are awaiting earnings results from Microsoft and Meta Platforms after today’s close.

Weaker-than-expected manufacturing activity in China is negative for global growth prospects after today’s news showed China Apr manufacturing PMI fell -1.5 to 49.0, weaker than expectations of 49.7 and the steepest pace of contraction in 16 months. 

The Treasury announced it will sell $125 billion of T-notes and T-bonds in next week’s quarterly refunding, right on expectations.

US MBA mortgage applications fell -4.2% in the week ended April 25, with the purchase mortgage sub-index down -4.4% and the refinancing sub-index down -3.7%.  The average 30-year fixed rate mortgage fell -1 bp to 6.89% from 6.90% in the prior week.

The US Apr ADP employment change rose +62,000, weaker than expectations of +115,000 and the smallest increase in 9 months.

US Q1 GDP fell -0.3% (q/q annualized), weaker than expectations of -0.2% and the steepest pace of contraction in 3 years.  The Q1 core PCE price index rose +3.5% q/q, stronger than expectations of +3.1% q/q.

The US Q1 employment cost index rose +0.9%, which is right on expectations.

Market attention this week will focus on news of US tariffs and trade negotiations.  Later this morning, Mar personal spending (expected +0.6% m/m), Mar personal income (expected +0.4% m/m), and the Mar core PCE price index (expected unchanged m/m and +2.2% y/y).  Finally, Microsoft and Meta Platforms will release their quarterly earnings after today’s close.  On Thursday, the Apr ISM manufacturing index is expected to fall -1.0 to 48.0. Thursday also brings earnings results from Amazon.com and Apple.  Friday brings Apr nonfarm payrolls (expected +130,000) and the Apr unemployment rate (expected unchanged at 4.2%).  Also, Apr average hourly earnings are expected to climb +0.3% m/m and +3.9% y/y. 

The markets are discounting the chances at 9% for a -25 bp rate cut after the May 6-7 FOMC meeting.

Q1 earnings reporting season is in full swing.  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.  So far, just over a third of S&P 500 companies have reported quarterly results, with 75% beating estimates.  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 today are mixed.  The Euro Stoxx 50 is down -0.06%.  China’s Shanghai Composite fell to a 1-week low and closed down -0.23%.  Japan’s Nikkei Stock 225 closed up +0.57%.

Interest Rates

June 10-year T-notes (ZNM25) today are up +2 ticks.  The 10-year T-note yield is down -0.4 bp to 4.168%.  June T-notes climbed to a 3-week high today, and the 10-year T-note yield dropped to a 3-week low of 4.133%.  T-notes are moving higher today on positive carryover from rallies in European government bonds.  T-notes also garnered support after the US Apr ADP employment change rose less than expected, and the Q1 employment index rose as expected, dovish factors for Fed policy.  In addition, today’s stock slump has boosted some safe-haven demand for T-notes.  T-notes fell from their best levels today after the US Q1 core PCE price index rose more than expected, a hawkish factor for Fed policy.

European government bond yields today are moving lower.  The 10-year German bund yield is down -2.8 bp to 2.469%.  The 10-year UK gilt yield fell to a 3-week low of 4.428% and is down -2.7 bp to 4.452%.

Eurozone Q1 GDP rose +0.4% q/q and +1.2% y/y, stronger than expectations of +0.2% q/q and +1.1% y/y.

German Mar retail sales fell -0.2% m/m, a smaller decline than expectations of -0.4% m/m.

German Apr CPI (EU harmonized) rose +2.2% y/y, stronger than expectations of +2.1% y/y, but still the slowest pace of increase in 7 months.

Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

US Stock Movers

Magnificent Seven stocks are under pressure today and weighing on the broader market.  Tesla (TSLA) is down more than -6%, and Nvidia (NVDA), Amazon.com (AMZN), and Meta Platforms (META) are down more than -3%.  Also, Alphabet (GOOGL) is down more than -2%, and Microsoft (MSFT) and Apple (AAPL) are down more than -1%.

Super Micro Computer (SMCI) is down more than -17% to lead gainers in the S&P 500 after reporting preliminary Q3 net sales of $4.5 billion to $4.6 billion, well below the consensus of $5.35 billion. 

Norwegian Cruise Line Holdings (NCLH) is down more than -11% after saying it saw “softening” in its 12-month forward bookings. 

Garmin Ltd (GRMN) is down more than -9% after forecasting full-year pro forma EPS of $7.80, below the consensus of $7.91.

Starbucks (SBUX) is down more than -8% after reporting Q2 adjusted EPS of 41 cents, weaker than the consensus of 49 cents, and said it sees challenges from tariffs and volatile coffee prices.

Werner Enterprises (WERN) is down more than -12% after Evercore ISI downgraded the stock to underperform from in line with a price target of $21. 

AppLovin (APP) is down more than -9% to lead losers in the Nasdaq 100 after Edgewater Research said, “Mobile gaming macro seems to be decelerating slowly,” and competition from both Meta Platforms and Alphabet is rising.

Carter’s (CRI) is down more than -4% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $25.

Seagate Technology Holdings (STX) is up more than +8% to lead gainers in the S&P 500 after reporting Q1 revenue of $2.16 billion, stronger than the consensus of $2.13 billion. 

Qorvo (QRVO) is up more than +7% after reporting Q4 adjusted EPS of $1.42, well above the consensus of 99 cents.

Trane Technologies (TT) is up more than +5% after reporting Q1 adjusted EPS from continuing operations of $2.45, better than the consensus of $2.20.

GE HealthCare (GEHC) is up more than +3% to lead gainers in the Nasdaq 100 after reporting Q1 revenue of $4.78 billion, stronger than the consensus of $4.66 billion. 

Western Digital (WDC) is up more than +4% after forecasting Q4 revenue of $2.3 billion to $2.6 billion and declared a cash dividend of 10 cents a share. 

PPG Industries (PPG) is up more than +3% after reporting Q1 adjusted EPS of $1.72, better than the consensus of $1.64, and forecast full-year adjusted EPS of $7.75-$8.05, the midpoint above the consensus of $7.80.

Earnings Reports (4/30/2025)

Aflac Inc (AFL), Albemarle Corp (ALB), Align Technology Inc (ALGN), Allstate Corp/The (ALL), Amcor PLC (AMCR), American Electric Power Co Inc (AEP), American Water Works Co Inc (AWK), ANSYS Inc (ANSS), Automatic Data Processing Inc (ADP), AvalonBay Communities Inc (AVB), Caterpillar Inc (CAT), CH Robinson Worldwide Inc (CHRW), Cognizant Technology Solutions (CTSH), Crown Castle Inc (CCI), eBay Inc (EBAY), Equinix Inc (EQIX), Everest Group Ltd (EG), Garmin Ltd (GRMN), GE HealthCare Technologies Inc (GEHC), Generac Holdings Inc (GNRC), Globe Life Inc (GL), Hess Corp (HES), Host Hotels & Resorts Inc (HST), Humana Inc (HUM), Illinois Tool Works Inc (ITW), International Paper Co (IP), Invitation Homes Inc (INVH), KLA Corp (KLAC), Martin Marietta Materials Inc (MLM), Meta Platforms Inc (META), MetLife Inc (MET), MGM Resorts International (MGM), Microsoft Corp (MSFT), Mid-America Apartment Communities (MAA), Norwegian Cruise Line Holdings (NCLH), PPL Corp (PPL), Prudential Financial Inc (PRU), PTC Inc (PTC), Public Service Enterprise Group (PEG), Public Storage (PSA), QUALCOMM Inc (QCOM), Stanley Black & Decker Inc (SWK), Super Micro Computer Inc (SMCI), Trane Technologies PLC (TT), UDR Inc (UDR), Ventas Inc (VTR), VICI Properties Inc (VICI), Vulcan Materials Co (VMC), Western Digital Corp (WDC), Yum!  Brands Inc (YUM).