Stocks Soar as Middle East Tensions Ease and Bond Yields Fall

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +1.11%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.19%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.53%.  September E-mini S&P futures (ESU25) are up +1.11%, and September E-mini Nasdaq futures (NQU25) are up +1.52%. 

Stock indexes rallied sharply on Tuesday, with the S&P 500 and Nasdaq 100 posting 4-month highs and the Dow Jones Industrials reaching a 3-1/2 month high. Global equity markets rallied, and WTI crude oil prices plunged more than -6%, after President Trump announced that Israel and Iran had agreed to a tentative ceasefire, spurring hopes for a lasting resolution to the conflict.  The easing of geopolitical risks boosted market sentiment and prompted a risk-on for asset markets.  Also, the plunge in crude prices reduced inflation expectations and knocked the 10-year T-note yield to a 1-1/2 month low.

Stocks rallied on Tuesday despite some negative economic news and hawkish Fed commentary. The Conference Board's June US consumer confidence index unexpectedly declined, and Fed Chair Powell, New York Fed President Williams, and Atlanta Fed President Bostic said they favored keeping interest rates on hold.

The US Apr S&P CoreLogic composite-20 home price index rose +3.42% y/y, weaker than expectations of +3.90% and the smallest increase in 1-3/4 years.

The Conference Board's June US consumer confidence index unexpectedly fell -5.4 to 93.0, weaker than expectations of an increase to 99.8.

The US June Richmond Fed manufacturing conditions survey unexpectedly rose +2 to -7, stronger than expectations of a decline to -10.

Fed Chair Powell said, "The effects of tariffs will depend, among other things, on their ultimate level, and for the time being, we are well-positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance."

New York Fed President Williams said it's "entirely appropriate" for the Fed to hold interest rates steady while they analyze the full impact of policy changes on the job market and inflation.

Atlanta Fed President Bostic said the Fed doesn't need to cut interest rates, with companies planning to raise prices later this year in response to higher import taxes and with the job market still stable.

The markets this week will look to see if the ceasefire between Israel and Iran holds. Also, any new tariff news or trade deals will be scrutinized.  On Wednesday, Mr. Powell will testify before the Senate Banking Committee on monetary policy.  Also, on Wednesday, US Mar new home sales are expected to fall -6.7% m/m to 693,000. On Thursday, Q1 GDP is expected to be unrevised at -0.2% (q/q annualized).  Also, weekly initial unemployment claims are expected to be unchanged at 245,000.  Friday brings May personal spending (expected +0.1% m/m) and May personal income (expected +0.3% m/m).  Also, the May core PCE price index, the Fed's preferred price gauge, is expected to rise by +0.1% m/m and +2.6% y/y.  Finally, the revised June University of Michigan US consumer sentiment index is expected to fall -0.2 to 60.3. 

The markets are discounting the chances at 19% for a -25 bp rate cut at the July 29-30 FOMC meeting.

Overseas stock markets on Tuesday settled sharply higher.  The Euro Stoxx 50 climbed to a 1-week high and closed up +1.44%.  China's Shanghai Composite rose to a 3-month high and closed up +1.15%.  Japan's Nikkei Stock 225 rallied to a 4-month high and closed up +1.14%.

Interest Rates

September 10-year T-notes (ZNU25) Tuesday closed up +6.5 ticks.  The 10-year T-note yield fell -5.3 bp to 4.295%.  Sep T-notes climbed toa 1-1/2 month high Tuesday, and the 10-year T-note yield fell to a 1-1/2 month low of 4.283%.  T-notes recovered from early losses Tuesday and moved higher after a -6% plunge in WTI crude oil knocked inflation expectations lower and sparked short covering in T-notes.  The 10-year breakeven inflation rate fell to a 1-week low of 2.286%.  Additionally, an unexpected decline in the Conference Board's US June consumer confidence index was bullish for T-notes.  T-notes added to their gains on comments from Fed Chair Powell, who said potential changes to the enhanced supplementary leverage ratio should encourage banks to hold more Treasuries.

T-notes initially moved lower on Tuesday as the announcement of a tentative ceasefire between Israel and Iran sparked a sharp rally in global equity markets, reducing safe-haven demand for T-notes.  T-note prices were also undercut by hawkish comments from Fed Chair Powell, who signaled he is in no rush to cut interest rates.  Tuesday's $69 billion Treasury auction of 2-year T-notes was met with subpar demand and was negative for T-note prices as the auction had a bid-to-cover ratio of 2.58, below the 10-auction average of 2.62. 

European government bond yields on Tuesday were mixed.  The 10-year German bund yield rose to a 1-week high of 2.573% and finished up +3.6 bp to 2.543%.  The 10-year UK gilt yield fell to a 1-1/2 month low of 4.447% and finished down -2.0 bp to 4.473%.

The German Jun IFO business climate index rose +0.9 to a 13-month high of 88.4, stronger than expectations of 88.0.

ECB Governing Council member Villeroy de Galhau said.  "If we look at the present assessment of markets so far, inflation expectations remain moderate.  If that was confirmed, it could possibly lead in the next six months to further accommodation."

Swaps are discounting the chances at 8% for a -25 bp rate cut by the ECB at the July 24 policy meeting.

US Stock Movers

Chipmakers rallied on Tuesday to lift the broader market.  Advanced Micro Devices (AMD) and Intel (INTC) closed up more than +6%, and Marvell Technology (MRVL) closed up more than +5%.   Also, Micron Technology (MU), Applied Materials (AMAT), and Lam Research (LRCX) closed up more than +4%.  In addition, NXP Semiconductors NV (NXPI), KLA Corp (KLAC), and Broadcom (AVGO) closed up more than +3%, and GlobalFoundries (GFS) and Microchip Technology (MCHP) closed up more than +2%. 

Airline stocks and cruise line operators moved higher Tuesday after crude prices plunged more than -6% to a 1-1/2 week low on the announcement of a ceasefire in the Israel-Iran conflict.  Carnival (CCL) closed up more than +6%, and Norwegian Cruise Line Holdings (NCLH) closed up more than +4%.  Also, American Airlines Group (AAL) and Alaska Air Group (ALK) closed up more than +3%, and Delta Airlines (DAL) and Royal Caribbean Cruises Ltd (RCL) closed up more than 2%.

Dexcom (DXCM) closed up more than +9% to lead gainers in the Nasdaq 100 after Health and Human Service Secretary Kennedy said his department is launching "one of the largest HHS campaigns in history" to encourage the use of wearable health devices.

Upstart Holdings (UPST) closed up more than +8% after Piper Sandler assumed coverage of the stock with a recommendation of overweight and a price target of $75. 

Uber Technologies (UBER) closed up more than +7% after beginning its driverless ride service in Atlanta. 

Lyft (LYFT) closed up more than +5% after TD Cowen upgraded the stock to buy from hold with a price target of $21. 

Mastercard (MA) closed up more than +2% after deepening its partnership with Fiserv to integrate its new FIUSD token across a range of Mastercard products and services. 

Energy producers and energy service providers sold off on Tuesday after WTI crude oil sank by more than -6%.  Occidental Petroleum (OXY) and Exxon Mobil (XOM) closed down more than -3%.  Also, Chevron (CVX) closed down more than -2% to lead losers in the Dow Jones Industrials.  In addition, ConocoPhillips (COP) and Hess Corp (HESS) closed down more than -2%.  Finally, Devon Energy (DVN), Diamondback Energy (FANG), and Phillips 66 (PSX) closed down more than -1%.

Defense contractors retreated Tuesday with the announcement of a ceasefire in the Israel-Iran war.  Northrop Grumman (NOC) closed down more than -3%.  Also, RTX Corp (RTX), Lockheed Martin (LMT), Huntington Ingalls Industries (HII), and L3Harris Technologies (LHX) closed down more than -1%.  In addition, General Dynamics (GD) closed down -0.45%. 

Precious metals mining stocks were under pressure Tuesday, with the price of COMEX gold falling to a 2-week low.  Anglogold Ashanti Plc (AU) closed down more than -4% and Gold Fields Ltd (GFI) closed down more than -3%.  Also, Newmont (NEM) closed down more than -2%.

Advanced Auto Parts (AAP) closed down more than -7% to lead auto parts retailers lower after Goldman Sachs downgraded the stock to sell from neutral with a price target of $46.  Also, AutoZone (AZO) closed down more than -3% to lead losers in the S&P 500, and O'Reilly Automotive (ORLY) closed down more than -2%.

Dollar General (DG) closed down more than -1% after Goldman Sachs downgraded the stock to neutral from buy.

Earnings Reports (6/25/2025)

Daktronics Inc (DAKT), General Mills Inc (GIS), HB Fuller Co (FUL), Jefferies Financial Group Inc (JEF), Micron Technology Inc (MU), MillerKnoll Inc (MLKN), Novagold Resources Inc (NG), Paychex Inc (PAYX), Steelcase Inc (SCS), Winnebago Industries Inc (WGO), Worthington Steel Inc (WS).