Trade War Risks Weigh on Stocks

The S&P 500 Index ($SPX) (SPY) today is down -0.37%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.07%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.47%.  June E-mini S&P futures (ESM25) are down -0.36%, and June E-mini Nasdaq futures (NQM25) are down -0.46%. 

Stock indexes today are trading lower, weighed down by US trade uncertainty.  President Trump said on Sunday that he had no plans to speak to Chinese President Xi Jinping, although Mr. Trump said there could be trade deals with some US trading partners as soon as this week.  Stock indexes recovered from their worst levels today after the US Apr ISM services index unexpectedly increased, which was a sign of strength in the economy.

Energy producers are sliding today, with the price of WTI crude down more than -2% at a 3-1/2 week low after OPEC+ on Saturday agreed to raise its crude production level by 411,000 bpd in June, threatening to add to a global crude oil glut.  Saudi Arabia also signaled that further similar-sized increases in crude output could follow, which is viewed as a strategy to reduce oil prices and punish overproducing OPEC+ members, such as Kazakhstan and Iraq.

The US Apr ISM services index unexpectedly rose +0.8 to 51.6, stronger than expectations of a decline to 50.2.  Also, the Apr ISM services prices paid sub-index rose +4.2 to a 2-1/4 year high of 65.1, higher than expectations of 61.4.

This week, the market will focus on tariffs and any changes to US trade policy.  On Tuesday, the Mar trade deficit is expected to widen to -$136.7 billion.  On Wednesday, the FOMC is expected to keep its federal funds target range unchanged at 4.25%-4.50%.  Post-FOMC comments on Wednesday from Fed Chair Powell will also be studied for any clues as to the future of Fed policy.  Thursday brings weekly initial unemployment claims, Q1 nonfarm productivity (expected 0.7%), and Q1 unit labor costs (expected +5.2%).

The markets are discounting the chances at 2% for a -25 bp rate cut after the 2-day FOMC meeting on Wednesday.

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 today are lower.  The Euro Stoxx 50 is down -0.05%.  China’s Shanghai Composite is closed for the Labor Day holiday.  Japan’s Nikkei Stock 225 is closed for the Children’s Day holiday.

Interest Rates

June 10-year T-notes (ZNM25) today are down -5 ticks.  The 10-year T-note yield is up +2.7 bp to 4.336%.  June T-notes tumbled to a 1-week low today, and the 10-year T-note yield rose to a 1-week high of 4.355%.  T-note prices dropped today after the Apr ISM services index rose more than expected, and the Apr ISM service prices-paid sub-index jumped to a 2-1/4 year high, bolstering inflation concerns.  T-notes are also being pressured by caution ahead of Wednesday’s FOMC decision, where the FOMC appears unlikely to lay out a dovish tone.  In addition, supply pressures are negative for T-notes as the Treasury’s quarterly refunding begins today with a $58 billion auction of 3-year T-notes as part of the week’s $125 billion auction package of T-note sand T-bonds. 

T-notes have support from some safe-haven demand with today’s slump in stocks.  T-notes also have carryover support from strength in 10-year German bunds. 

European government bond yields today are moving lower.  The 10-year German bund yield is down -0.7 bp to 2.526%. The 10-year UK gilt yield is not trading today, with markets in the UK closed for the May Day holiday.

The Eurozone May Sentix investor confidence index rose +11.4 to -8.1, stronger than expectations of -11.5. 

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

Energy stocks and energy service providers are under pressure today, with the price of WTI crude down more than -2% at a 3-1/2 week low.  As a result, Apa Corp (APA) and Occidental Petroleum (OXY) are down more than -3%.  Also, ConocoPhillips (COP), Diamondback Energy (FANG), Exxon Mobil (XOM), and Haliburton (HAL) are down more than -2%.  In addition, Baker Hughes (BKR), Chevron (CVX), Schlumberger (SLB), and Devon Energy (DVN) are down more than -1%. 

Media stocks are falling today after President Trump said he plans to impose a 100% tariff on films produced overseas.  As a result, Netflix (NFLX) and Paramount Global (PARA) are down more than -1%.  Also, Warner Bros Discovery (WBD) is down -0.70%, and Disney (DIS) is down -0.28%. 

Tyson Foods (TSN) is down more than -10% to lead losers in the S&P 500 after reporting Q2 sales of $13.07 billion, below the consensus of $13.12 billion.

ON Semiconductor (ON) is down more than -7% to lead losers in the Nasdaq 100 despite reporting better-than-expected Q1 revenue after forecasting Q2 adjusted gross margins of 36.5% to 38.5%, below the consensus of 39%.

Zimmer Biomet Holdings (ZBH) is down more than -9% after cutting its full-year adjusted diluted EPS estimate to $7.90-$8.10 from a previous estimate of $8.15-$8.35. 

Apple (AAPL) is down more than -3% to lead losers in the Dow Jones Industrials as the company prices a 4-part debt offering today.

Berkshire Hathaway (BRK.B) is down more than -4% after CEO Buffet announced that he would step down at the end of the year. 

EQT Corp (EQT) is up more than +3% to lead gainers in the S&P 500 after UBA upgraded the stock to buy from neutral with a price target of $64.

Howard Hughes Holdings (HHH) is up more than +4% after entering into an agreement where Pershing Square Capital will invest $900 million to acquire 9 million shares of the company. 

Freshpet (FRPT) is up more than +3% after reporting Q1 net sales of $263.2 million, above the consensus of $259.9 million. 

Axsome Therapeutics (AXSM) is up more than +5% after reporting Q1 cash and cash equivalents of $300.9 million, above the consensus of $255.5 million. 

Wendy’s (WEN) is up more than +2% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $15. 

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).