Stocks Stabilize on Trade Talk Optimism

The S&P 500 Index ($SPX) (SPY) today is up +0.07%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.10%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.14%.  September E-mini S&P futures (ESU25) are up +0.10%, and September E-mini Nasdaq futures (NQU25) are up +0.15%. 

Stocks have stabilized today following Monday’s retreat as recent tariff announcements suggested there is room for further negotiations.  Late Monday, President Trump said he’s still open to additional trade talks and that the August 1 deadline for higher tariff rates was “not 100% firm,” adding, “we’re not going to be unfair” and would look favorably on countries continuing to offer additional concessions.  Monday afternoon, 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. 

Higher bond yields are limiting gains in stocks as the 10-year T-note yield is up +5 bp at a 2-week high of 4.43%.  Bond yields are climbing on the concern that higher tariffs could boost inflation and prevent the Fed from cutting interest rates.

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 eleven S&P 500 sectors are projected to post an increase in earnings, the fewest since Q1 of 2023, according to Yardeni Research.

This week’s market focus will mainly be on new tariff and trade deal news 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 today are higher.   The Euro Stoxx 50 climbed to a 3-1/2 week high and is up +0.09%.  China’s Shanghai Composite rallied to an 8-month high and closed up +0.70%.  Japan’s Nikkei Stock 225 closed up +0.26%.

Interest Rates

September 10-year T-notes (ZNU25) today are down -6 ticks.  The 10-year T-note yield is up +4.8 bp to 4.427%.  Sep T-notes fell to a 2-week low today, and the 10-year T-note yield climbed to a 2-week high of 4.431%.  T-note prices are being undercut by Monday’s announcement of US tariff increases on several countries, including Japan and South Korea, which fueled concerns that the higher tariffs could boost inflation and prevent the Fed from cutting interest rates.  T-note prices are also being undercut by rising inflation expectations as the 10-year breakeven inflation expectations rate today rose to a 6-week high of 2.378%.  Supply pressures are also negative for T-notes as the Treasury will auction $119 billion of T-notes and T-bonds this week, beginning with today’s $58 billion auction of 3-year T-notes.  T-note prices are also being undercut by today’s weakness in European government bond prices.

European government bond yields today are moving higher.  The 10-year German bund yield climbed to a 1-month high of 2.707% and is up +4.5 bp to 2.688%.  The 10-year UK gilt yield rose to a 1-month high of 4.654% and is up +6.1 bp to 4.647%.

German trade news was weaker than expected after May exports fell -1.4% m/m, weaker than expectations of -0.5% m/m.  Also, May imports fell -3.8% m/m, weaker than expectations of -1.7% m/m and the biggest decline in a year.

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

Chip stocks are climbing today to give underlying support to the broader market.  GlobalFoundries (GFS) and Microchip Technology (MCHP) are up more than +2%.  Also, Advanced Micro Devices (AMD), Micron Technology (MU), ON Semiconductor Corp (ON), NXP Semiconductors NV (NXPI), Analog Devices (ADI), and Intel (INTC) are up more than +1%.

AppLovin Corp (APP) is up more than +3% to lead gainers in the Nasdaq 100 after Scotiabank initiated coverage on the stock with a recommendation of outperform and a price target of $430.

Stanley Black & Decker (SWK) is up more than +2% after Wolfe Research upgraded the stock to peer perform from underperform.

Parsons Corp (PSN) is up more than +2% after Raymond James upgraded the stock to strong buy from market perform with a price target of $90.

Merit Medical Systems (MMSI) is up more than +2% after reporting preliminary Q2 revenue of $380 million to $384 million, stronger than the consensus of $372.3 million. 

Vertiv Holdings (VRT) is up more than +2% after Melius Research LLC upgraded the stock to buy from hold with a price target of $165.

Capital One Financial (COF) is up more than +1% after TD Cowen upgraded the stock to buy from hold with a price target of $258. 

Datadog (DDOG) is down more than -4% to lead losers in the Nasdaq 100 after Guggenheim Securities downgraded the stock to sell from neutral with a price target of $105.

Circle Internet Group (CRCL) is down more than -4% after Mizuho Securities initiated coverage of the stock with a recommendation of sell and a price target of $85.

Bank of America (BAC) is down more than -1% after HSBC downgraded the stock to hold from buy. 

Ciena (CIEN) is down more than -1% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $70.

JPMorgan Chase (JPM) is down more than -1% after HSBC downgraded the stock to reduce from hold. 

Earnings Reports (7/8/2025)

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