S&P 500 and Nasdaq 100 Rally to Record Highs on a Resilient US Economy

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.54%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.52%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.74%.  September E-mini S&P futures (ESU25) rose +0.59%, and September E-mini Nasdaq futures (NQU25) rose +0.77%.

Stocks rallied on Thursday, with the S&P 500 and Nasdaq 100 indexes posting new record highs.  Signs that the US economy is holding up, despite tariff uncertainty, boosted stocks.  Positive economic news Thursday included a decline in weekly jobless claims to a 3-month low, a stronger-than-expected retail sales report, and a rise in the Philadelphia Fed index to a 5-month high.

Stocks added to their gains Thursday afternoon on dovish comments from San Francisco Fed President Mary Daly, who said the most recent set of rate projections from Fed officials, issued in June, offered a "reasonable outlook" in pointing to two 25 bp rate cuts by year's end.  She added that the Fed should not wait too long before moving on rates, because if they wait until inflation is 2%, they've "likely injured the economy in some way that was completely unnecessary."

On the negative side, health insurers retreated on Thursday, led by a -12% plunge in Elevance Health after the company cut its earnings outlook for the year.  Also, hawkish comments from Fed Governor Adriana Kugler were bearish for stocks when she said the Fed should keep interest rates on hold "for some time," citing accelerating inflation as tariffs start to boost prices.

US weekly initial unemployment claims unexpectedly fell -7,000 to a 3-month low of 221,000, showing a stronger labor market than expectations of an increase to 233,000.

US June retail sales rose +0.6% m/m, stronger than expectations of +0.1% m/m, and June retail sales ex-autos rose +0.5% m/m, stronger than expectations of +0.3% m/m.

The US June import price index ex-petroleum was unchanged m/m, weaker than expectations of +0.2% m/m.

The US July Philadelphia Fed business outlook survey rose +19.9 to a 5-month high of 15.9, stronger than expectations of -1.0.

The US July NAHB housing market index rose +1 to 33, right on expectations.

On the trade front, President Trump said late Wednesday that he intends to send a tariff letter to more than 150 countries notifying them their tariff rates could be 10% or 15%, effective August 1, and that the group was "not big countries who don't do that much business with the US."

Also, signs that the US could ease some of its export restrictions on semiconductor chips to China are bullish for chip makers.  Commerce Secretary Lutnick said Nvidia could soon resume sales of its less advanced H20 chips to China, and Advanced Micro Devices received similar assurances from the Commerce Department, a sign that the US may be in the process of negotiating a grand trade deal with China.  Treasury Secretary Bessent is expected to meet his Chinese counterpart, Vice Premier He Lifeng, within "the next couple of weeks" and signaled the US will likely extend an August 12 deadline for the easing of sky-high tariffs.

However, stocks were undercut by negative trade news that emerged last week and during this past weekend.  Over the weekend, President Trump announced that the US will impose 30% tariffs on US imports from the European Union and Mexico, effective August 1.  Mr. Trump said last Thursday that a 35% tariff on some Canadian products would take effect on August 1, up from the current 25%. Last week, Mr. Trump imposed a 50% tariff on copper imports, which will include semi-finished goods, and stated that drug companies could face tariffs as high as 200% on imports if they don't relocate production to the US within the next year.

Federal funds futures prices are discounting the chances for a -25 bp rate cut at 3% at the July 29-30 FOMC meeting and 58% at the following meeting on September 16-17.

The markets will focus on any fresh news regarding tariffs or trade deals during the remainder of this week.  On Friday, June housing starts are expected to climb +3.6% m/m to 1.300 million, and June building permits are expected to slip -0.5% m/m to 1.387 million.  Also, the University of Michigan's US July consumer sentiment index is expected to climb +0.8 to 61.5.

Earnings season began in earnest this week with a focus on big bank earnings results.  The consensus is for S&P 500 companies to show Q2 earnings growth of +2.8% y/y, the smallest increase in two years, according to Bloomberg Intelligence.  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. 

Overseas stock markets on Thursday settled higher.  The Euro Stoxx 50 closed up +1.49%.  China's Shanghai Composite closed up +0.37%.  Japan's Nikkei Stock 225 closed up +0.60%.

Interest Rates

September 10-year T-notes (ZNU25) on Thursday closed down -3.5 ticks.  The 10-year T-note yield rose +0.8 bp to 4.463%.  T-notes on Thursday posted modest losses following stronger-than-expected US economic news, including June retail sales, weekly initial unemployment claims, and the July Philadelphia Fed manufacturing survey, which signaled a hawkish tone for Fed policy.  Also, Thursday's rally in the S&P 500 to a new all-time high reduced safe-haven demand for T-notes.  In addition, hawkish comments from Fed Governor Adriana Kugler weighed on T-notes when she said the Fed should keep interest rates on hold "for some time." Finally, rising inflation expectations undercut T-notes when the 10-year breakeven inflation rate rose to a 4.75-month high of 2.450% on Thursday.

Losses in T-notes were limited Thursday on carryover support from late Wednesday when President Trump said he has "no plans" on firing Fed Chair Powell. T-notes also found support on signs of easing price pressures after Thursday's news showed the June import price index ex-petroleum rose less than expected.

European government bond yields on Thursday were mixed.  The 10-year German bund yield fell -1.3 bp to 2.675%.  The 10-year UK gilt yield rose to a 6-week high of 4.678% and finished up +1.7 bp to 4.655%.

Swaps are discounting the chances at 1% for a -25 bp rate cut by the ECB at the July 24 policy meeting.

US Stock Movers

United Airlines Holdings (UAL) closed up more than +3% to lead airline stocks higher after CEO Kirby said the second half of the year has become more predictable and the company has potential "upside" to beat its earnings targets as customers returned to booking flights.  Also, Alaska Air Group (ALK) closed up more than +3% and American Airlines Group (AAL) closed up more than +2%.  In addition, Delta Air Lines (DAL) closed up more than +1%.

PepsiCo (PEP) closed up more than +7% to lead gainers in the Nasdaq 100 after reporting Q2 net revenue of $22.73 billion, above the consensus of $22.32 billion. 

Snap-on (SNA) closed up more than +7% after reporting Q2 net sales of $1.18 billion, stronger than the consensus of $1.16 billion. 

Steven Madden Ltd (SHOO) closed up more than +6% after Citigroup upgraded the stock to buy from neutral with a price target of $32. 

CSX Corp (CSX) closed up more than +4% after Semafor reported that Union Pacific is exploring an acquisition of the company.

Travelers Cos (TRV) closed up more than +3% to lead gainers in the Dow Jones Industrials after reporting Q1 core EPS of $6.51, well above the consensus of $3.60.

Mondelez International (MDLZ) closed up more than +3% after Jefferies upgraded the stock to buy from hold with a price target of $78. 

Health insurance providers are sliding today, led by a -12% plunge in Elevance Health (ELV) to lead losers in the S&P 500 after cutting its earnings outlook for the year to "approximately" $30 per share, well below a previous forecast of $34.15 to $34.85 per share.  Also, Molina Healthcare (MOH) closed down more than -5% and Centene (CNC) closed down more than -4%.  In addition, Cigna Group (CI) closed down more than -2% and Humana (HUM) closed down more than -1%.  Finally, UnitedHealth Group (UNH) closed down more than -1% to lead losers in the Dow Jones Industrials.

Sonic Automotive (SAH) closed down -10% after JPMorgan Chase downgraded the stock to underweight from overweight with a price target of $72.

Abbott Laboratories (ABT) closed down more than -8% after reporting Q2 organic sales of +6.90%, below the consensus of +7.03% and forecasting full-year organic sales of +6% to +7%, weaker than the consensus of +7.37%.

Starwood Property Trust (STWD) closed down more than -5% after selling over 25.5 million shares of its common stock in an underwritten public offering overnight between $19.91 to $20.33 a share, below Wednesday's closing price of $20.85.

Shake Shack (SHAK) closed down more than -1% after Jeffries downgraded the stock to underperform from hold with a price target of $120.

Zoetis (ZTS) closed down -1% after Leerink Partners downgraded the stock to market perform from outperform.

Earnings Reports (7/18/2025)

3M Co (MMM), Ally Financial Inc (ALLY), American Express Co (AXP), Charles Schwab Corp/The (SCHW), Comerica Inc (CMA), Euronet Worldwide Inc (EEFT), Huntington Bancshares Inc/OH (HBAN), MarketAxess Holdings Inc (MKTX), Regions Financial Corp (RF), Schlumberger NV (SLB), Southern Copper Corp (SCCO), Truist Financial Corp (TFC).