Stocks Surge on the US-China Trade Truce

The S&P 500 Index ($SPX) (SPY) Monday closed up +3.26%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +2.81%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +4.02%.  June E-mini S&P futures (ESM25) are up +3.32%, and June E-mini Nasdaq futures (NQM25) are up +4.03%. 

Stock indexes rallied sharply on Monday, with the S&P 500 and Nasdaq 100 posting 2-1/4 month highs and the Dow Jones Industrials posting a 1-1/2 month high.  Stocks, the dollar, and asset markets surged Monday after China and the US agreed to cut tariffs and de-escalate their trade war.  On Monday, risk-on sentiment returned to asset markets after Treasury Secretary Bessent said trade talks with China were "very robust and productive." The US and China agreed to temporarily lower tariffs on each other's products for three months, with the US reducing its tariffs on China from 145% to 30% and China reducing its duties from 125% to 10%.  Treasury Secretary Bessent Said that neither nation wants to "decouple" and that further talks might lead to "purchasing agreements" by China.

Easing geopolitical risks also supports stocks as India and Pakistan agreed to an immediate ceasefire.  Also, Ukraine President Zelenskiy said he would travel to Istanbul on Thursday to conduct direct negotiations with Russian President Putin.

Monday's comments from Fed Governor Kugler were negative for stocks, especially when she said that US tariff policies are likely to boost inflation and weigh on economic growth, even with the recently announced reduction to tariffs on China.  She added that there could also be "significant effects" on productivity since businesses may cut back on investment and make other less efficient moves to navigate the tariffs.

This week, the markets will focus on tariff news and the prospects for additional trade deals.  On Tuesday, Apr CPI is expected +0.3% m/m and +2.4% y/y, with Apr CPI es-food and energy up +0.3% m/m and +2.8% y/y.  On Thursday, Apr retail sales are expected to be +0.1% m/m, and Apr retail sales ex-autos are expected to be +0.3% m/m.  Also, on Thursday, Apr PPI final demand is expected +0.2% m/m and +2.5% y/y, with Apr PPI ex-food and energy expected +0.3% m/m and +3.1% y/y.  Finally, on Thursday, Apr manufacturing production is expected to fall by 0.4% m/m.  On Friday, Apr housing stars are expected to be +3.1% m/m to 1.365 million, and Apr building permits are expected to be -1.2% m/m to 1.450 million.  Also, on Friday, the preliminary May University of Michigan US consumer sentiment index is expected +1.1 to 53.3. 

The markets are discounting the chances at 11% for a -25 bp rate cut after the June 17-18 FOMC meeting.

Q1 earnings reporting season remains in progress.  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 412 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 Monday settled higher.  The Euro Stoxx 50 rallied to a 1-1/2 month high and closed up +1.56%.  China's Shanghai Composite rose to a 6-week high and closed up +0.82%.  Japan's Nikkei Stock 225 rose to a 6-week high and closed up +0.38%.

Interest Rates

June 10-year T-notes (ZNM25) Monday closed down -21 ticks.  The 10-year T-note yield rose +7.8 bp to 4.571%.  June T-notes on Monday tumbled to a 4-week low, and the 10-year T-note yield rose to a 4-week high of 4.467%.  The easing of US-China trade tensions sparked a rally in global equity markets and reduced safe-haven demand for T-notes after the US and China agreed to temporarily lower some tariffs for 90 days.  Also, supply pressures prompted bond dealers to short T-notes to hedge against the incoming supply as sixteen companies offered nearly $19 billion of investment-grade bonds on Monday.  T-notes remained lower on hawkish comments from Fed Governor Kugler, who said US tariff policies could also have "significant effects" on productivity since businesses may cut back on investment.

European government bond yields on Monday moved higher.  The 10-year German bund yield rose to a 1-month high of 2.650% and finished up +8.6 bp to 2.648%.  The 10-year UK gilt yield rose to a 3-1/2 week high of 4.655% and ended up +7.5 bp to 4.643%.

ECB Governing Council member Kazaks said, "The financial markets at the moment are expecting another ECB rate cut in June, and while looking at today's data, I see that is a pretty possible step."

Swaps are discounting the chances at 83% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

US Stock Movers

Magnificent Seven stocks surged Monday after the US and China agreed to slash tariffs.  Amazon.com (AMZN) closed up more than +8%, and Meta Platforms (META) closed up more than +7%.  Also, Apple (AAPL) and Tesla (TSLA) closed up more than +6%, and Nvidia (NVDA) closed up more than +5%.  In addition, Alphabet (GOOGL) closed up more than +3%, and Microsoft (MSFT) closed up more than +2%.

Chip stocks soared Monday as US-China trade tensions eased.  Microchip Technology (MCHP) closed up more than +10%, and Lam Research (LRCX) closed up more than +9%.  Also, ON Semiconductor (ON), KLA Corp (KLAC), and Texas Instruments (TXN) closed up more than +8%, and Applied Materials (AMAT), Micron Technology (MU), NXP Semiconductors NV (NXPI), GlobalFoundries (GFS), Analog Devices (ADI), and Marvell Technology (MRVL) closed up more than +7%.  

Travel and cruise stocks rallied Monday as the easing of global trade tensions spurs optimism in the economic outlook.  Carnival (CCL) closed up more than +9%, and Norwegian Cruise Line Holdings (NCLH) closed up more than +8%.  Also,  Expedia Group (EXPE) and Host Hotels & Resorts (HST) closed up more than +6%, and Delta Air Lines (DAL) and American Airlines Holdings (AAL) closed up more than +5%.  In addition, Royal Caribbean Cruises (RCL) closed up more than +3%, and United Airlines Holdings (UAL) closed up more than +2%.

Trucking stocks rallied Monday due to the easing of US-China trade tensions.  XPO Inc (XPO) closed up more than +14%, and Saia Inc (SAIA) closed up more than +12%.  Also, Old Dominion Freight Line (ODFL) closed up more than +11%, JB Hunt Transport Services (JBHT) closed up more than +10%, and CH Robinson Worldwide (CHRW) closed up more than +7%. 

Energy stocks moved higher Monday as the price of WTI crude rose more than +1% to a 2-week high.  As a result, Phillips 66 (PSX) closed up +7%, and Valero Energy (VLO) closed up more than +6%.  Also, Haliburton (HAL), ConocoPhillips (COP), Marathon Petroleum (MPC), and Occidental Petroleum (OXY) closed up more than +4%.  In addition, Schlumberger (SLB), Diamondback Energy (FANG), Devon Energy (DVN), and Baker Hughes (BKR) closed up more than 3%.

NRG Energy (NRG) closed up more than +26% to lead gainers in the S&P 500 after reporting Q1 adjusted Ebitda of $1.13 billion, well above the consensus of $891 million, and acquiring the nat-gas assets from LS Power Equity Advisors for about $12 billion, including debt.

Shopify (SHOP) closed up more than +14% after Nasdaq announced late last Friday that the stock will replace MongoDB in the Nasdaq 100 Index before trading begins on May 19. 

Utility stocks were under pressure Monday due to rising T-note yields.  Xcel Energy (EXL) closed down more than -4% to lead losers in the Nasdaq 100.  Also, Exelon Corp (EXC), Alliant Energy (LNT), Consolidated Edison (ED), Duke Energy (DUK), and American Electric Power (AEP) closed down more than -3%. 

Mining stocks are retreated Monday as easing global trade tensions knocked gold prices down more than -3% to a 1-week low.  Gold Fields Ltd (GFI) closed down more than -10%, and AngloGold Ashanti Plc (AU) closed down more than -9%.  Also, Newmont (NEM) closed down more than -5% to lead losers in the S&P 500. 

Cigna Group (CI) closed down more than -4%, and CVS Health (CVS) closed down more than -3% after President Trump proposed a plan to "cut out" the drug industry middlemen as a way to reduce health costs. 

Earnings Reports (5/13/2025)

Everus Construction Group Inc (ECG), Exelixis Inc (EXEL), GRAIL Inc (GRAL), Landstar System Inc (LSTR), Loar Holdings Inc (LOAR), NU Holdings Ltd/Cayman Islands (NU), Under Armour Inc (UAA).