Easing Trade Tensions Boost Stocks but Chip Stocks Slide

The S&P 500 Index ($SPX) (SPY) today is up +0.25%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.45%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.14%.  September E-mini S&P futures (ESU25) are up +0.26%, and September E-mini Nasdaq futures (NQU25) are down -0.15%.

Stock indexes today are mixed, with the Dow Jones Industrials posting a 2-week high. Stocks found support today on some positive trade news that has boosted market sentiment.  President Trump announced a trade deal with Japan late Tuesday, which will impose 15% tariffs on imports from Japan, lower than the previously announced 25% rate set to take effect on August 1.  The deal also creates a $550 billion fund for Japan to invest in the US. Japan also agreed to purchase 100 Boeing aircraft, increase its purchases of US rice by 75%, and buy $8 billion in other agricultural products, while raising its defense spending with American firms to $17 billion annually, from $14 billion.

However, the Nasdaq 100 index is under pressure today due to weakness in auto-related chip makers, led by a -12% plunge in Texas Instruments after company executives on an earnings call said there isn’t a “true broad recovery” in the automotive sector, as automotive customers who ship into the US are cautious due to tariffs.

Today’s US economic news was bearish for stocks after June existing home sales fell -2.7% m/m to a 9-month low of 3.93 million, weaker than expectations of -0.7% to 4.00 million.

US MBA mortgage applications rose +0.8% in the week ended July 18, with the purchase mortgage sub-index up +3.4% and the refinancing sub-index down -2.6%.  The average 30-year fixed rate mortgage rose +2 bp to 6.84% from 6.82% in the prior week.

Recent trade news has put some downward pressure on stocks.  Last Wednesday, President Trump announced that he intends to send a tariff letter to more than 150 countries, notifying them that their tariff rates could be 10% or 15%, effective August 1.  Also, President Trump recently announced that the US will impose 30% tariffs on US imports from the European Union and Mexico, effective August 1.  In addition, Mr. Trump said that a 35% tariff on some Canadian products would take effect on August 1, up from the current 25%. 

The markets this week will focus on any tariff news along with the announcement of any new trade deals.  After today’s close, Alphabet and Tesla will release their quarterly earnings.  On Thursday, weekly initial unemployment claims are expected to climb by +5,000 to 226,000.  Also, the July S&P US manufacturing PMI is expected to slip -0.2 to 52.7. Finally, on Thursday, June new home sales are expected to climb +4.3% m/m to 650,000.  On Friday, June capital goods new orders nondefense ex-aircraft and parts are expected to increase by +0.2% m/m.

Federal funds futures prices are discounting the chances for a -25 bp rate cut at 5% at the July 29-30 FOMC meeting and 58% at the following meeting on September 16-17.

The markets are absorbing a heavy slate of quarterly corporate earnings results this week. About one-fifth of the companies in the S&P 500 are expected to report their Q2 earnings results this week. Early results now show S&P 500 earnings are on track to rise +3.2% for the second quarter, better than the pre-season expectations of +2.8% y/y, 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 today are higher.  The Euro Stoxx 50 is up +0.88%.  China’s Shanghai Composite rose to a new 9.5-month high and closed up +0.01%.  Japan’s Nikkei Stock 225 rallied to a 1-year high and closed up sharply by +3.51%.

Interest Rates

September 10-year T-notes (ZNU25) today are down -8 ticks.  The 10-year T-note yield is up +3.0 bp to 4.374%.  T-notes are retreating today after the announcement of a trade deal between Japan and the US reduced safe-haven demand for government debt.  Supply pressures are also weighing on T-notes as the Treasury will auction $13 billion of 20-year T-bonds later today. 

Losses in T-notes are contained after US existing home sales fell more than expected to a 9-month low, a dovish factor for Fed policy.  T-note prices also have support as the US 10-year breakeven inflation rate fell to a 1-week low today of 2.386%.

European government bond yields today are moving higher.  The 10-year German bund yield is up +1.4 bp to 2.604%.  The 10-year UK gilt yield is up +4.2 bp to 4.611%.

Swaps are discounting the chances at 2% for a -25 bp rate cut by the ECB at Thursday’s policy meeting.

US Stock Movers

Power producers are climbing today after PJM Interconnection LLC predicted that the AI boom will prompt businesses and households served by the largest US power grid to spend a record $16.1 billion to ensure electricity supplies, which could support utility profit margins.  Talen Energy (TLN) is up more than +8% and Vistra (VST) is up more than +6%.  Also, NRG Energy (NRG) is up more than +5% and Constellation Group (CEG) is up more than +4%. 

Weakness in shares of automotive and industrial chipmakers is limiting gains in the Nasdaq 100, with Texas Instruments (TXN) down more than -12% to lead losers in the Nasdaq 100 after company executives on an earnings call said there isn’t a “true broad recovery” in the automotive sector as automotive customers who ship into the US are cautious due to tariffs.  Also, ON Semiconductor (ON) is down more than -7% and Microchip Technology (MCHP) is down more than -6%.  In addition, NXP Semiconductors (NXPI), Analog Devices (ADI), and Global Foundries (GFS) are down more than -2%. 

Lamb Weston Holdings (LW) is up more than +20% to lead gainers in the S&P 500 after reporting Q4 net sales of $1.68 billion, stronger than the consensus of $1.59 billion.

GE Vernova (GEV) is up more than +14% after reporting Q2 revenue of $9.11 billion, stronger than the consensus of $8.80 billion. 

Thermo Fisher Scientific (TMO) is up more than +13% after reporting Q2 revenue of $10.86 billion, above the consensus of $10.69 billion, and forecasting full-year sales of $43.6 billion-$44.2 billion, the midpoint above the consensus of $43.7 billion. 

Lennox International (LII) is up more than +9% after reporting Q2 adjusted EPS of $7.82, well above the consensus of $6.89.

TE Connectivity Plc (TEL) is up more than +8% after reporting Q3 net sales of $4.53 billion, better than the consensus of $4.33 billion, and forecasting Q4 net sales of $4.55 billion, above the consensus of $4.42 billion.

Baker Hughes (BKR) is up more than +7% to lead gainers in the Nasdaq 100 after reporting Q2 revenue of $6.91 billion, stronger than the consensus of $6.64 billion.

Capital One Financial (COF) is up more than +1% after reporting Q2 net revenue of $12.49 billion, above the consensus of $11.84 billion. 

Fiserv (FI) is down more than -17% to lead losers in the S&P 500 after reporting Q2 organic revenue grew +8.00%, below the consensus of +8.91%. 

Otis Worldwide (OTIS) is down more than -11% after reporting Q2 net sales of $3.60 billion, below the consensus of $3.71 million, and cutting its full-year net sales forecast to $114.5 billion to $14.6 billion from a previous estimate of $14.6 billion to $14.8 billion, weaker than the consensus of $14.72 billion.

Teledyne Technologies (TDY) is down more than -5% after forecasting full-year adjusted EPS of $21.20-$21.50, the midpoint below the consensus of $21.42. 

Unity Software (U) is down more than -3% after BTIG downgraded the stock to sell from neutral with a price target of $25. 

Northern Trust Corp (NTRS) is down more than -3% after reporting Q2 provision for credit losses of $16.5 million, well above the consensus of $4.31 million.

Hilton Worldwide Holdings (HLT) is down more than -1% after cutting its full-year net income forecast to $1.64 billion to $1.68 billion from a previous forecast of $1.71 billion to $1.75 billion. 

Earnings Reports (7/23/2025)

Alphabet Inc (GOOGL), Amphenol Corp (APH), AT&T Inc (T), Boston Scientific Corp (BSX), Chipotle Mexican Grill Inc (CMG), CME Group Inc (CME), Crown Castle Inc (CCI), CSX Corp (CSX), Fiserv Inc (FI), Freeport-McMoRan Inc (FCX), GE Vernova Inc (GEV), General Dynamics Corp (GD), Globe Life Inc (GL), Hasbro Inc (HAS), Hilton Worldwide Holdings Inc (HLT), International Business Machine (IBM), Lamb Weston Holdings Inc (LW), Las Vegas Sands Corp (LVS), Lennox International Inc (LII), Molina Healthcare Inc (MOH), Moody’s Corp (MCO), NextEra Energy Inc (NEE), Northern Trust Corp (NTRS), NVR Inc (NVR), O’Reilly Automotive Inc (ORLY), Otis Worldwide Corp (OTIS), Packaging Corp of America (PKG), Raymond James Financial Inc (RJF), Rollins Inc (ROL), ServiceNow Inc (NOW), TE Connectivity PLC (TEL), Teledyne Technologies Inc (TDY), Tesla Inc (TSLA), Thermo Fisher Scientific Inc (TMO), T-Mobile US Inc (TMUS), United Rentals Inc (URI).