Stocks Rally Sharply on Trade Optimism and Lower Bond Yields

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +2.05%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.78%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.39%.  June E-mini S&P futures (ESM25) are up +2.11%, and June E-mini Nasdaq futures (NQM25) are up +2.36%. 

Stock indexes rallied sharply on Tuesday after President Trump over the weekend extended the deadline for the European Union to face 50% tariffs until July 9 after threatening to impose a 50% tariff on US importers of EU goods starting June 1.  Stocks also garnered support from Tuesday’s comments from National Economic Council Director Hasset, who said, “We’ll probably see a few more trade deals, even this week,” with India among the countries that are close to securing a deal. Gains in stocks accelerated on Tuesday after the Conference Board’s US May consumer confidence index rose more than expected to a three-month high.

Stocks also found support on a slide in bond yields spurred on by speculation that Japan could change its debt sales plans, which could lead to stronger demand for US debt securities if Japan cuts its debt issuance. The 10-year T-note yield fell -8 bp to 4.43%.  Bloomberg News reported that Japan’s Finance Ministry sent a questionnaire to market participants regarding the appropriate issuance amounts for government bonds, a sign that the ministry may seek to reduce debt issuance.

US Apr capital goods new orders nondefense ex-aircraft and parts fell -1.3% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 6 months.

The US Mar S&P CoreLogic composite-20 home price index rose +4.07% y/y, weaker than expectations of 4.50% y/y and the smallest increase in 1-1/2 years.

The Conference Board US May consumer confidence index rose +12.3 to a 3-month high of 98.0, stronger than expectations of 87.1.

The US May Dallas Fed manufacturing survey of general business activity rose +20.5 to -15.3, stronger than expectations of -23.1.

Minneapolis Fed President Kashkari said he favors maintaining the fed funds rate at current levels until there is more clarity on the path of tariffs and their impact on prices.

The markets are discounting the chances at 6% for a -25 bp rate cut at the next FOMC meeting on June 17-18.

The markets this week will focus on any tariff news or signs of new trade deals.  On Wednesday, the minutes of the May 6-7 FOMC meeting will be released.  Also, after Wednesday’s close, Nvidia will report its quarterly earnings.  On Thursday, weekly initial unemployment claims are expected to climb +3,000 to 230,000. Also, Q1 GDP is expected unchanged at -0.3% (q/q annualized).  In addition, Apr pending home sales on Thursday are expected to fall -1.0% m/m. On Friday, Apr personal spending is expected up +0.2% m/m, and Apr personal income is expected up +0.3% m/m. Also, the Apr core PCE price index, the Fed’s preferred inflation gauge, is expected to rise +0.1% m/m and +2.5% y/y.  Finally, on Friday, the University of Michigan May consumer sentiment index is expected to be revised upward by +0.2 points to 51.0 from the previously reported 50.8.

Q1 earnings reporting season is winding down.  So far, more than 90% of companies in the S&P 500 have reported quarterly results, and 77% have beaten estimates, the highest percentage since Q2 of 2024.  Earnings growth in Q1 is running at +13.1%, compared with just +6.6% expected before the start of the season.  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 mixed.  The Euro Stoxx 50 closed up by +0.37%.  China’s Shanghai Composite fell to a 2-1/2 week low and closed down -0.18%.  Japan’s Nikkei Stock 225 closed up +0.51%.

Interest Rates

June 10-year T-notes (ZNM25) Tuesday closed up by +14 ticks.  The 10-year T-note yield fell -8.5 bp to 4.426%.  June T-notes rallied Tuesday on positive carryover from strength in 10-year German bunds.  T-notes also have support after Bloomberg News reported that Japan’s finance ministry sent a questionnaire to market participants regarding appropriate issuance amounts for government bonds, which could lead to stronger demand for US debt securities if Japan cuts its debt issuance.  Weaker-than-expected US economic news on Tuesday, including April capital goods new orders (nondefense ex-aircraft and parts) and the March S&P CoreLogic composite-20 home price index, also gave T-notes a boost.

Tuesday’s soaring stocks reduced safe-haven demand for government debt and limited gains in T-notes.  Also, tepid demand for the Treasury’s $69 billion 2-year T-note auction was negative for T-notes as the auction had a 2.57 bid-to-cover ratio, below the 10-auction average of 2.65. 

European government bond yields on Tuesday moved lower.  The 10-year German bund yield fell to a 2-1/2 week low of 2.513% and finished down -2.8 bp at 2.532%.  The 10-year UK gilt yield dropped to a 2-week low of 4.602% and finished down -1.5 bp to 4.666%.

The Eurozone May economic confidence indicator rose +1.0 to 94.8, stronger than expectations of 94.1. 

Eurozone Apr new car registrations rose +1.3% y/y to 925,000 units, the first increase in four months.

ECB Governing Council member Holzmann said the ECB moving interest rates “further south would be more risky than staying where we are and waiting until September.”

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

The Magnificent Seven stocks rallied Tuesday and boosted the overall market.  Tesla (TSLA) closed up more than +6% and Nvidia (NVDA) closed up more than +3%.  Also, Alphabet (GOOGL), Meta Platforms (META), Amazon.com (AMZN), Apple (AAPL), and Microsoft (MSFT) closed up more than +2%.

Chip stocks moved higher Tuesday and supported gains in the broader market.  Marvel Technology (MRVL) and ARM Holdings Plc (ARM) closed up more than +5%, and Microchip Technology (MCHP) and ON Semiconductor (ON) closed up more than +4%.  Also, Advanced Micro Devices (AMD), KLA Corp (KLAC), NXP Semiconductors NV (NXPI), and Texas Instruments (TXN) closed up more than +3%.  In addition, Lam Research (LRCX), Analog Devices (ADI), Micron Technology (MU), Applied Materials (AMAT), Broadcom (AVGO), ASML Holding NV (ASML), and Qualcomm (QCOM) closed up more than +2%. 

Travel stocks and cruise line operators moved higher on Tuesday. Carnival (CCL) and Royal Caribbean Cruises Ltd (RCL) closed up more than +6%, and Southwest Airlines (LUV) and Host Hotels and Resorts (HST) closed up more than +5%.  Also, United Airlines Holdings (UAL) and Norwegian Cruise Line Holdings (NCLH) closed up more than +4%, and Delta Air Lines (DAL), Expedia Group (EXPE), Hilton Worldwide Holdings (HLT), and Mariott International (MAR) closed up more than +3%.

Hologic (HOLX) closed up more than +14% to lead gainers in the S&P 500 after the Financial Times reported the company rejected a non-binding offer from TPG and Blackstone to purchase it for $16 billion.

Informatica (INFA) closed up more than +6% after Salesforce Inc. agreed to buy the company for about $8 billion. 

Block Inc. (XYZ) closed up more than +5% after BNP Paribas Exane upgraded the stock to outperform from neutral with a price target of $72.

Vertiv Holdings (VRT) closed up more than +5% after Evercore ISI raised its price target on the stock to $150 from $100. 

Gold mining stocks slid on Tuesday as the price of gold fell nearly -2%.  As a result, Gold Fields Ltd (GFI) closed down more than -4%, and Anglogold Ashanti Plc (AU) and Newmont (NEM) closed down more than -1%.

PDD Holdings (PDD) closed down more than -13% to lead losers in the Nasdaq 100 after reporting Q1 adjusted operating margin declined to -19.1%, the lowest since Q1 of 2022.

Fair Isaac (FICO) closed down more than -11% to lead losers in the S&P 500 after FHFA Director Pulte said he is “still not happy with FICO” and his agency will be making some decisions on the rising cost of credit score reports in the next one to three weeks.

AutoZone (AZO) closed down more than -3% after reporting a Q3 gross margin of 52.7%, weaker than the consensus of 53.4%.

Copart (CPRT) closed down more than -1% as analysts cut their price targets on the stock by an average of -5% since it reported earnings last Thursday.

Earnings Reports (5/28/2025)

Agilent Technologies Inc (A), Capri Holdings Ltd (CPRI), Dick’s Sporting Goods Inc (DKS), elf Beauty Inc (ELF), HP Inc (HPQ), Macy’s Inc (M), nCino Inc (NCNO), Nordson Corp (NDSN), Nutanix Inc (NTNX), NVIDIA Corp (NVDA), Pure Storage Inc (PSTG), Salesforce Inc (CRM), SentinelOne Inc (S), Synopsys Inc (SNPS), U-Haul Holding Co (UHAL), Veeva Systems Inc (VEEV).