Stocks Settle Higher on Trade Optimism and US Labor Market Strength

The S&P 500 Index ($SPX) (SPY) Friday closed up +1.47%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.39%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.60%.  June E-mini S&P futures (ESM25) are up +1.50%, and June E-mini Nasdaq futures (NQM25) are up +1.60%. 

Stock indexes rallied on Friday and settled moderately higher, with the S&P 500 and Nasdaq 100 posting 5-week highs and the Dow Jones Industrials posting a 1-month high.  Stocks rose Friday on a possible thaw in the US-China trade stalemate.  China’s Commerce Ministry is assessing the possibility of trade talks with the US.  On Friday, it said, “The US has recently sent messages to China through relevant parties, hoping to start trade talks with China, and we are currently evaluating this.” 

Stocks added to their gains Friday on signs the US labor market remains resilient with slack wage pressures after April payrolls and hourly earnings rose less than expected.  Also, US Mar factory orders posted their biggest increase in 8 months.

US Apr nonfarm payrolls rose +177,000, stronger than expectations of +138,000, although Mar nonfarm payrolls were revised lower by 43,000 jobs to +185,000 from the previously reported +228,000.  The Apr unemployment rate was unchanged at 4.2%, in line with expectations.

US Apr average hourly earnings rose +0.2% m/m and +3.8% y/y, slightly weaker than expectations of +0.3% m/m and +3.9% y/y.

US Mar factory orders rose +4.3% m/m, the largest increase in 8 months.

On the negative side for stocks, the 10-year T-note yield rose +9.0 bp as the better-than-expected US payroll report dampens the outlook for Fed interest rate cuts.  Also, Apple closed down more than -3% after it reported falling China sales and warned that tariffs will increase costs.  In addition, Amazon.com gave a weaker-than-expected outlook for operating income and said it is bracing for a tougher business climate. 

The markets are discounting the chances at 3% 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, of the 332 companies in the S&P 500 companies that have reported quarterly results, 78% have beaten 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 on Friday settled higher.  The Euro Stoxx 50 climbed to a 1-month high and closed up +2.42%.  China’s Shanghai Composite was closed for the Labor Day holiday.  Japan’s Nikkei Stock 225 rallied to a 5-week high and closed up +1.04%.

Interest Rates

June 10-year T-notes (ZNM25) Friday closed down -22.5 ticks.  The 10-year T-note yield rose +9.0 bp to 4.308%.  June T-notes on Friday retreated from a larger-than-expected increase in US Apr nonfarm payrolls, which shows strength in the labor market that is hawkish for Fed policy.  Also, a possible thaw in the US-China trade war has curbed safe-haven demand for T-notes after China’s Commerce Ministry said it is assessing the possibility of trade talks with the US.  Friday’s stock rally has also reduced safe-haven demand for T-notes.  Finally, T-notes were pressured by negative carryover from Friday’s slump in 10-year German bunds to a 2-week low.  A supportive factor for T-notes is benign US wage pressures after Apr average hourly earnings rose less than expected. 

European government bond yields on Friday moved higher.  The 10-year German bund yield jumped to a 2-week high of 2.534% and finished up +8.9 bp to 2.533%.  The 10-year UK gilt yield rebounded from a 3-1/2 week low of 4.408% and finished up +2.8 bp to 4.509%.

The Eurozone Apr core CPI was revised upward to 2.7% y/y from the previously reported 2.4% y/y.

The Eurozone Apr S&P manufacturing PMI was revised upward by +0.3 to 49.0 from the previously reported 48.7.

The Eurozone Mar unemployment rate was unchanged at a record low 6.2%.

Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

US Stock Movers

Chip stocks are rallying today and are giving the broader market a boost.  ARM Holdings Plc closed up more than +6%, and ON Semiconductor (ON) closed up more than +5%.  Also, Applied Materials (AMAT) and Microchip Technology (MCHP) closed up more than +4%.  In addition, Broadcom (AVGO), Intel (INTC), KLA Corp (KLAC), GlobalFoundries (GFS), NXP Semiconductors NV (NXPI), Texas Instruments (TXN), Micron Technology (MU), Lam Research (LRCX), and Qualcomm (QCOM) closed up more than +3%. 

Travel stocks moved higher on Friday on signs of economic strength after US Apr nonfarm payrolls rose more than expected.  United Airlines Holdings (UAL) closed up more than +7%, and Delta Air Lines (DAL) and Norwegian Cruise Line Holdings (NCLH) closed up more than +6%.  Also, Southwest Airlines (LUV) and Carnival (CCL) closed up more than +4%.

Dexcom (DXCM) closed up more than +16% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q1 revenue of $1.04 billion, better than the consensus of $1.02 billion. 

Duolingo (DUOL) closed up more than +20% after boosting its full-year bookings estimate to $1.12 billion- $1.13 billion from a previous estimate of $1.08 billion-$1.10 billion, stronger than the consensus of $1.09 billion. 

Exact Sciences (EXAS) closed up more than +8% after reporting Q1 revenue of $706.8 million, better than the consensus of $688.7 million, and raised its full-year revenue forecast to $3.07 billion-$3.12 billion from a previous estimate of $3.03 billion-$3.09 billion, stronger than the consensus of $3.06 billion. 

Iron Mountain (IRM) closed up more than +4% after boosting its full-year revenue forecast to $6.74 billion-$6.89 billion from a previous forecast of $6.65 billion-$6.80 billion.

US-listed Chinese stocks are climbing after China’s Commerce Ministry is assessing the possibility of trade talks with the US. As a result, PDD Holdings (PDD), JD.com (JD), Baidu (BIDU), and Alibaba Group Holding Ltd (BABA) closed up more than +2%. 

Apple (AAPL) closed down more than -3% to lead losers in the Dow Jones Industrials after reporting Q2 greater China revenue of $16.00 billion, weaker than the consensus of $16.83 billion. 

Amazon.com (AMZN) closed down -0.12% after forecasting Q2 operating income of $13.0 billion to $17.5 billion, weaker than the consensus of $17.82 billion. 

Block (XYZ) closed down more than -20% after reporting Q1 net revenue of $5.77 billion, weaker than the consensus of $6.22 billion, and cut its full-year adjusted operating income estimate to $1.9 billion from a previous estimate of $2.1 billion, below the consensus of $2.12 billion. 

Atlassian (TEAM) closed down more than -8% to lead losers in the Nasdaq 100 after forecasting Q4 revenue of $1.35 billion to $1.36 billion, the midpoint below the consensus of $1.36 billion. 

Motorola Solutions (MSI) closed down more than -7% after forecasting Q2 adjusted EPS of $3.32-$3.37, weaker than the consensus of $3.47.

Take-Two Interactive Software (TTWO) closed down more than -6% after announcing a delay in releasing the Grand Theft Auto VI game. 

Hologic (HOLX) closed down more than -5% after cutting its full-year adjusted EPS forecast to $4.15-$4.25 from a previous forecast of $4.25-$4.35. 

Earnings Reports (5/5/2025)

Clorox Co/The (CLX), Coterra Energy Inc (CTRA), Cummins Inc (CMI), Diamondback Energy Inc (FANG), Ford Motor Co (F), Henry Schein Inc (HSIC), Loews Corp (L), ON Semiconductor Corp (ON), Palantir Technologies Inc (PLTR), Realty Income Corp (O), Tyson Foods Inc (TSN), Vertex Pharmaceuticals Inc (VRTX), Williams Cos Inc/The (WMB), Zimmer Biomet Holdings Inc (ZBH).