Stocks Settle Mixed on Hawkish Fed Chair Powell

The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.12%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.38%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.16%.  September E-mini S&P futures (ESU25) fell -0.09%, and September E-mini Nasdaq futures (NQU25) rose +0.19%.

Stock indexes gave up an early advance on Wednesday and settled mixed, with the Dow Jones Industrials posting a 1.5-week low.  Stocks relinquished their gains after Fed Chair Powell pushed back against imminent interest rate cuts, citing inflation risks from rising tariffs.  The 10-year T-note yield rose +5 bp to 4.37%, which sparked long liquidation in equities, after Fed Chair Powell said the US labor market "looks solid" and with tariffs starting to show in consumer prices, the current modestly restrictive policy stance is appropriate.

Stocks on Wednesday initially moved higher on signs of resilience in the US economy.  The labor market remains healthy after the July ADP employment change rose more than expected and posted its largest increase in four months.  Also, economic activity rebounded after Q2 GDP expanded more than expected.

As expected, the FOMC voted 9-2 to keep the fed funds target rate unchanged at 4.25%-4.50%. Fed Governors Bowman and Waller dissented in favor of a rate cut, the first time since 1993 that two members of the Fed board have dissented.

The Fed downgraded its economic view, as the post-FOMC statement said, "Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year." The FOMC had previously characterized growth as expanding "at a sold pace."

The US July ADP employment change rose +104,000, stronger than expectations of +76,000 and the largest increase in four months.  Also, the Jun ADP employment change was revised upward to -23,000 from the previously reported -33,000.

US Q2 GDP rose +3.0% (q/q annualized), stronger than expectations of +2.6%.  The Q2 core PCE price index rose +2.5% q/q, stronger than expectations of +2.3% q/q.

US Jun pending home sales unexpectedly fell -0.8% m/m, weaker than expectations of a +0.2% m/m increase.

US MBA mortgage applications fell -3.8% in the week ending July 25, with the purchase mortgage sub-index down -5.8% and the refinancing sub-index down -1.1%.  The average 30-year fixed rate mortgage fell -1 bp to 6.83% from 6.84% in the prior week.

The Treasury said in its quarterly refunding announcement today that it anticipates keeping the size of its note and bond auctions unchanged "for at least the next several quarters," and will rely more on the shortest-dated securities to fund the federal deficit at least until 2026.

In the latest tariff news, President Trump today said he will impose a tariff rate of 25% on India starting August 1 and suggested he would add an additional penalty over the country's energy purchases from Russia.

The markets this week will focus on any news of new trade deals before Friday's deadline.  On Thursday, initial weekly unemployment claims are expected to rise by 6,000 to 223,000, and the Q2 employment cost index is expected to increase by 0.8%. Also, Jun personal spending is expected to climb +0.4% m/m and Jun personal income is expected to rise +0.2% m/m. In addition, the Jun core PCE price index, the Fed's preferred inflation gauge, is expected to climb +0.3% m/m and +2.7% y/y.  Finally, on Thursday, the Jul MNI Chicago PMI is expected to increase by +1.6 to 42.0. On Friday, Jul nonfarm payrolls are expected to increase by +109,000, and the Jul unemployment rate is expected to rise by +0.1 to 4.2%.  Also, Jul average hourly earnings are expected +0.3% m/m and +3.8% y/y.  In addition, the Jul ISM manufacturing index is expected to increase by +0.2 to 49.5.  Finally, the University of Michigan Jul consumer sentiment index is expected to be unrevised at 61.8. 

The markets are awaiting President Trump's August 1 deadline for trade deals to avoid high tariffs.  On July 16, Mr. 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.  As an update, Mr. Trump last Wednesday said, "We'll have a straight, simple tariff of anywhere between 15% and 50%," an indication that the floor for tariffs is rising and suggesting that he would not go below 15%. 

Federal funds futures prices are discounting the chances for a -25 bp rate cut at 47% at the September 16-17 FOMC meeting and 36% at the following meeting on October 28-29.

This week kicks off the earnings season's busiest week, with 38% of the stocks in the S&P 500 reporting quarterly earnings, double the amount reported last week. The earnings results of Magnificent Seven members will be front and center, with Microsoft and Meta Platforms reporting after Wednesday's close and Apple and Amazon.com reporting on Thursday. Early results show that S&P 500 earnings are on track to rise +4.5% for the second quarter, better than the pre-season expectations of +2.8% y/y, according to Bloomberg Intelligence.  With about a third of S&P 500 firms having reported, around 82% exceeded profit estimates. 

Overseas stock markets on Wednesday settled mixed.  The Euro Stoxx 50 closed up +0.26%.  China's Shanghai Composite rallied to a 9.5-month high and closed up +0.17%.  Japan's Nikkei Stock 225 closed down -0.05%.

Interest Rates

September 10-year T-notes (ZNU25) Wednesday closed down -11.5 ticks.  The 10-year T-note yield rose +5.0 bp to 4.370%.  Sep T-notes fell from a 3.5-week high Wednesday and turned lower, and the 10-year T-note yield rose from a 3.5-week low of 4.313% and moved higher.  T-notes erased early gains Wednesday on signs of strength in the US labor market after the July ADP employment change rose more than expected.  T-notes extended their losses after Q2 GDP expanded more than expected.  

T-notes briefly recovered their losses Wednesday afternoon after two Fed Governors dissented on Wednesday's FOMC decision in favor of a rate cut, and after the Fed downgraded its economic view in its post-meeting statement.  However, T-notes sank to their lows after Fed Chair Powell said that with inflation risks from tariffs, the current modestly restrictive policy stance is appropriate.

European government bond yields on Wednesday moved lower.  The 10-year German bund yield fell -0.3 bp to 2.706%.  The 10-year UK gilt yield fell to a 1-week low of 4.575% and finished down -3.0 bp to 4.603%.

Eurozone Q2 GDP rose +0.1% q/q and +1.4% y/y, stronger than expectations of unchanged m/m and +1.2% y/y.

Eurozone July economic confidence rose +1.6 to a 5-month high of 95.8, stronger than expectations of 94.5.

Swaps are discounting the chances at 14% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

Check Point Software (CHKP) closed down more than -14% after reporting Q2 adjusted EPS of $2.37, right on expectations. 

Entegris Inc. (ENTG) closed down more than -14% after reporting Q2 adjusted gross margin of 44.6%, below the consensus of 45.1%. 

IDEX Corp (IEX) closed down more than -11% to lead losers in the S&P 500 after cutting its full-year adjusted EPS forecast to $7.85-$7.95 from a previous estimate of $8.10-$8.45.

Old Dominion Freight Line (ODFL) closed down more than -9% to lead losers in the Nasdaq 100 after reporting Q2 EPS of $1.27, below the consensus of $1.29.

Trane Technologies (TT) closed down more than -8% after reporting Q2 net revenue of $5.75 billion, below the consensus of $5.77 billion. 

GE HealthCare Technologies (GEHC) closed down more than -7% after CEO Saccaro said in a conference call that he expects "softness" in the Chinese region in the second half of this year. 

Mondelez International (MDLZ) closed down more than -6% after reporting Q2 North American organic revenue fell -3.4%, weaker than expectations of -1.83%, citing elevated cocoa costs. 

Palo Alto Networks (PANW) closed down more than -5% after it agreed to buy CyberArk for $25 billion in cash and stock. 

Generac Holdings (GNRC) closed up more than +19% to lead gainers in the S&P 500 after reporting Q2 net sales of $1.06 billion, better than the consensus of $1.03 billion, and raising its full-year adjusted Ebitda margin forecast to 18% to 19% from a previous estimate of 17% to 19%.

Teradyne (TER) closed up more than +18% after reporting Q2 adjusted EPS of 57 cents, better than the consensus of 54 cents.

Humana (HUM) closed up more than +12% after reporting Q2 adjusted ESP of $6.27, stronger than the consensus of $5.74, and raising its full-year adjusted EPS estimate to $17.00 from a previous estimate of $16.25, well above the consensus of $16.35.

Marvell Technology (MRVL) closed up more than +7% to lead gainers in the Nasdaq 100 after Morgan Stanley raised its price target on the stock to $80 from $73.

Bunge Global (BG) closed up more than +5% after reporting Q2 adjusted EPS of $1.31, stronger than the consensus of $1.11.

Electronic Arts (EA) closed up more than +5% after reporting Q1 net bookings of $1.30 billion, above the consensus of $1.24 billion. 

Expand Energy (EXE) closed up more than +4% after reporting Q2 total revenue of $3.69 billion, well above the consensus of $2.52 billion.

Etsy (ETSY) closed up more than +2% after reporting Q2 gross merchandise sales of $2.81 billion, better than the consensus of $2.77 billion.

Earnings Reports (7/31/2025)

AbbVie Inc (ABBV), AES Corp/The (AES), Air Products and Chemicals Inc (APD), Amazon.com Inc (AMZN), Ameren Corp (AEE), AMETEK Inc (AME), Apple Inc (AAPL), Aptiv PLC (APTV), Arthur J Gallagher & Co (AJG), Baxter International Inc (BAX), Biogen Inc (BIIB), Bristol-Myers Squibb Co (BMY), Builders FirstSource Inc (BLDR), Camden Property Trust (CPT), Cigna Group/The (CI), Clorox Co/The (CLX), CMS Energy Corp (CMS), Coinbase Global Inc (COIN), Comcast Corp (CMCSA), CVS Health Corp (CVS), Eastman Chemical Co (EMN), Edison International (EIX), Eversource Energy (ES), Exelon Corp (EXC), First Solar Inc (FSLR), Howmet Aerospace Inc (HWM), Huntington Ingalls Industries (HII), Ingersoll Rand Inc (IR), Intercontinental Exchange Inc (ICE), International Paper Co (IP), Kellanova (K), Kimco Realty Corp (KIM), KKR & Co Inc (KKR), KLA Corp (KLAC), Masco Corp (MAS), Mastercard Inc (MA), Mettler-Toledo International I (MTD), Monolithic Power Systems Inc (MPWR), Norwegian Cruise Line Holdings (NCLH), Paramount Global (PARA), PG&E Corp (PCG), PPL Corp (PPL), Quanta Services Inc (PWR), ResMed Inc (RMD), S&P Global Inc (SPGI), Southern Co/The (SO), Stryker Corp (SYK), Vulcan Materials Co (VMC), Willis Towers Watson PLC (WTW), Xcel Energy Inc (XEL), Xylem Inc/NY (XYL).