Stocks Slide on Trade Tensions

The S&P 500 Index ($SPX) (SPY) Monday closed down -0.79%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.94%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.79%.  September E-mini S&P futures (ESU25) are down -0.82%, and September E-mini Nasdaq futures (NQU25) are down -0.80%. 

Stocks were under pressure on Monday as trade tensions returned to the forefront, with US trading partners rushing to finalize trade deals with the Trump administration ahead of Wednesday's deadline.  On Sunday, President Trump pledged to announce unilateral tariff rates on dozens of countries in the coming days.  Mr. Trump also stated that countries aligning with the anti-American policies of the BRICS group of nations (Brazil, Russia, India, China, and South Africa) will face an additional 10% tariff. 

Stock losses accelerated Monday afternoon when President Trump announced plans to hike tariffs on several countries, including Japan, South Korea, Laos, South Africa, Myanmar, and Malaysia, with rates ranging from 25% to 40%, effective August 1. Bond yields also rose on the tariff news, with the 10-year T-note yield climbing by +4 bp to 4.39%.  The higher tariffs could boost inflation and prevent the Fed from cutting interest rates.

On the positive side for stocks, Treasury Secretary Bessent announced that August 1 will be the new effective date for higher tariffs, and some countries may be offered a three-week extension to negotiate.  Also, the European Union (EU) and the US are moving closer to a trade agreement following a Sunday call between European Commission President Ursula Von der Leyen and President Trump, according to an EU commission spokesman.

Stocks also have support after President Trump last Friday signed the reconciliation bill into law.  The fiscal stimulus from the bill will be a net positive for the US economy, but the higher deficit is negative as it increases the risk of an eventual debt crisis in the United States.

Tesla closed down more than -6% to lead mega-cap technology stocks lower after President Trump criticized Elon Musk's bid to start a new political party, intensifying concerns about implications for Tesla and other companies led by Musk. 

Another hurdle for stocks is the upcoming earnings season, which begins this week.  Bloomberg Intelligence data show that the consensus for Q2 earnings of S&P 500 companies is for a rise of +2.8% year-over-year, the smallest increase in two years.  Also, only six of the 11 S&P 500 sectors are projected to post an increase in earnings, the fewest since Q1 of 2023, according to Yardeni Research.

The focus of the markets this week will be on any new tariff news and if US trading partners sign trade deals ahead of Wednesday's deadline. On Wednesday, the minutes of the June 17-18 FOMC meeting will be released.  On Thursday, weekly initial unemployment claims will be released.  Also, on Thursday, St. Louis Fed President Musalem and San Francisco Fed President Daly speak on the US economy and monetary policy.

Federal funds futures prices are discounting the chances at 5% for a -25 bp rate cut at the July 29-30 FOMC meeting.

Overseas stock markets on Monday settled mixed.   The Euro Stoxx 50 closed up +1.00%.  China's Shanghai Composite closed up +0.02%.  Japan's Nikkei Stock 225 closed down -0.56%.

Interest Rates

September 10-year T-notes (ZNU25) Monday closed down -9.5 ticks.  The 10-year T-note yield rose +3.9 bp to 4.385%.  T-notes were undercut after President Trump last Friday signed his tax and spending plan into law, which will boost the US budget deficit by a total of $3.4 trillion over the next 10 years, according to the CBO, thus requiring the Treasury to sell more debt to fund the deficit.  Losses in T-notes accelerated after President Trump announced plans to hike tariffs on several countries, including Japan, South Korea, Laos, South Africa, Myanmar, and Malaysia, with rates ranging from 25% to 40%, effective August 1.  The higher tariffs could boost inflation and prevent the Fed from cutting interest rates.

Supply pressures are also weighing on T-notes as the Treasury will auction $119 billion of T-notes and T-bonds this week, beginning with Tuesday's $58 billion auction of 3-year T-notes.  T-note prices were also weighed down by negative carryover Monday from a decline in European government bond prices. 

European government bond yields on Monday moved higher.  The 10-year German bund yield rose +3.6 bp to 2.643%.  The 10-year UK gilt yield rose +3.2 bp to 4.586%.

The Eurozone July Sentix investor confidence index rose +4.3 to a nearly 3.50-year high of 4.5, stronger than expectations of 1.0.

Eurozone May retail sales fell -0.7% m/m, weaker than expectations of -0.6% m/m and the biggest decrease in 1.75 years.

German May industrial production unexpectedly rose +1.2% m/m, stronger than expectations of a -0.2% m/m decline.

Swaps are discounting the chances at 5% for a -25 bp rate cut by the ECB at the July 24 policy meeting.

US Stock Movers

Tesla (TSLA) closed down more than -6% to lead losers in the S&P 500 and Nasdaq 100 after CEO Musk said he is forming a new political party, which sparked backlash from President Trump and raised concerns about the implications for Mr. Musk's companies.

Chip stocks were under pressure Monday and weighed on the broader market.  ARM Holdings Plc (ARM) closed down more than -5 % and Marvell Technology (MRVL) closed down more than -4%.  Also, Advanced Micro Devices (AMD), NXP Semiconductors NV (NXPI), Microchip Technology (MCHP), Intel (INTC), GlobalFoundries (GFS), ON Semiconductor Corp (ON), and Qualcomm (QCOM) closed down more than -2%.  In addition, Micron Technology (MU), KLA Corp (KLAC), Analog Devices (ADI), and Texas Instruments (TXN) closed down more than -1%. 

Webull (BULL) closed down more than -10% after securing a standby equity purchase agreement with a fund managed by Yorkville Partners that allows Webull to issue $1 billion of Class A shares at a 2.5% discount to market price over the next three years.

Stellantis NV (STLA) closed down more than -4% after Bank of America Global Research downgraded the stock to neutral from buy, saying it expects to see a "very weak" first-half report on July 29.

Progressive Corp (PGR) closed down more than -3% after Morgan Stanley downgraded the stock to equal weight from overweight.

Travelers Cos (TRV) closed down more than -1% to lead losers in the Dow Jones Industrials after Barclays downgraded the stock to equal weight from overweight. 

MGM Resorts International (MGM) closed down more than -1% after Goldman Sachs initiated coverage on the stock with a recommendation of sell and a price target of $34.

WNS Holdings Ltd (WNS) closed up more than +15% after Capgemini SE agreed to purchase the company for $3.3 billion or $76.50 per share.

Phibro Animal Health Corp (PAHC) closed up more than +7% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $35.

Geo Group (GEO) and CoreCivic (CXW) closed up more than +4% as the approval of President Trump's tax and spending bill will add billions of dollars for immigrant detention centers.

Tractor Supply Co (TSCO) closed up more than +3% to lead gainers in the S&P 500 after Bloomberg Second Measure reported sales for the company rose +4.3% in the fiscal quarter ended June 28.

GE Vernova (GEV) closed up more than +2% after UBS initiated coverage of the stock with a recommendation of buy with a price target of $614.

Public Service Enterprise Group (PEG) closed up more than +1% after UBS upgraded the stock to buy from neutral with a price target of $97. 

Earnings Reports (7/8/2025)

Aehr Test Systems (AEHR), Kura Sushi USA Inc (KRUS), Penguin Solutions Inc (PENG).