Morning Rally Fizzles: Stocks Reverse Course After Early Gains.

The S&P 500 Index ($SPX) (SPY) today is down -0.14%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.39%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.03%.

After the S&P 500 and Nasdaq 100 posted new record highs this morning, stock indexes are moving lower in afternoon trading. 

Stellar earnings results from Microsoft and Meta Platforms are leading megacap technology stocks after they boosted their capital spending plans and pledged to continue investing in artificial intelligence.  

There was a mixed batch of economic news today showed a resilient labor market, but weaker-than-expected consumer spending and still sticky price pressures and labor costs.

Weighing on the Dow Jones Industrials index is a -4% slide in UnitedHealth Group after Baird downgraded the stock to underperform from neutral.

US weekly initial unemployment claims rose +1,000 to 218,000, showing a stronger labor market than expectations of 224,000.

US Jun personal spending rose +0.3% m/m, weaker than expectations of +0.4% m/m.  Jun personal income rose +0.3% m/m, stronger than expectations of +0.2% m/m.

The US Jun core PCE price index, the Fed’s preferred inflation gauge, rose +2.8% y/y, stronger than expectations of +2.7% y/y.

The US Q2 employment cost index rose +0.9%, stronger than expectations of +0.8%.

The US Jul MNI Chicago PMI rose +6.7 to a four-month high 47.1, stronger than expectations of 42.0.

In the latest tariff news, President Trump today said he will impose a tariff rate of 15% on imports from South Korea and that a deal with Taiwan was also being drafted as the two countries reached “a certain degree of consensus.”  In addition, trade deals are in the offing for Thailand and Cambodia after they agreed to a ceasefire. 

The markets this week will focus on any news of new trade deals before Friday’s deadline.  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 40% 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 Apple and Amazon.com reporting after today’s closing.  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 over 50% of S&P 500 firms having reported, around 82% exceeded profit estimates. 

Overseas stock markets today are mixed.  The Euro Stoxx 50 fell from a 2.5-week high and is down -1.15%.  China’s Shanghai Composite slid to a 1-week low and closed down -1.18%.  Japan’s Nikkei Stock 225 closed up +1.02%.

Interest Rates

September 10-year T-notes (ZNU25) today are up +6 ticks.  The 10-year T-note yield is down -3.8 bp to 4.332%.  T-notes are moving higher today on some positive carryover from a rally in 10-year UK gilts to a 3.5-week high.  Also, month-end buying of longer-term government debt securities by bond fund managers to extend duration and balance their bond portfolios is supportive for T-notes. 

T-notes fell back from their best levels after weekly jobless claims rose less than expected, and the Q2 employment cost index and the Jun core PCE price index, the Fed’s preferred inflation gauge, rose more than expected, hawkish factors for Fed policy.  In addition, T-notes have some negative carryover from Wednesday when Fed Chair Powell dampened speculation of a Fed rate cut in September when he said that with inflation risks from tariffs, the current modestly restrictive policy stance is appropriate.

European government bond yields today are moving lower.  The 10-year German bund yield is down -1.0 bp to 2.695%.  The 10-year UK gilt yield fell to a 3.5-week low of 4.557% and is down -3.5 bp to 4.567%.

The Eurozone Jun employment rate remained unchanged at a record low of 6.2%, showing a stronger labor market than expectations of a +0.1 point increase to 6.3%.

The German Jul unemployment change rose +2,000, showing a stronger labor market than expectations of +15,000.

German Jul CPI (EU harmonized) eased to +1.8% y/y from +2.0% y/y in Jun, weaker than expectations of +1.9% y/y and the slowest pace of increase in 10 months.

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

US Stock Movers

Meta Platforms (META) is up more than +11% to lead gainers in the Nasdaq 100 after reporting Q2 revenue of $47.53 billion, well above the consensus of $44.83 billion and raised its capital expenditure estimate to $66 billion-$72 billion from a previous estimate of $64 billion-$72 billion, the midpoint above the consensus of $67.79 billion. 

Microsoft (MSFT) is up more than +4% to lead gainers in the Dow Jones Industrials after reporting Q4 revenue of $76.44 billion, stronger than the consensus of $73.89 billion. 

EBay (EBAY) is up more than +17% to lead gainers in the S&P 500 after reporting Q2 net revenue of $2.73 billion, better than the consensus of $2.64 billion, and forecasting Q3 net revenue of $2.69 billion-$2.74 billion, stronger than the consensus of $2.65 billion. 

Carvana (CVNA) is up more than +19% after reporting Q2 revenue of $4,84 billion, well above the consensus of $4.57 billion. 

CH Robinson Worldwide (CHRW) is up more than +15% after reporting Q2 adjusted EPS of $1.29, stronger than the consensus of $1.16, and after Baird upgraded the stock to outperform from neutral with a price target of $135. 

Norwegian Cruise Line Holdings (NCLH) is up more than +11% after reporting Q2 adjusted Ebitda of $694.0 million, better than the consensus of $671.1 million, and raised its full-year occupancy forecast to 103% from 102.5%, above the consensus of 102.6%. 

Huntington Ingalls Industries (HII) is up more than +10% after reporting Q2 EPS of $3.86, well above the consensus of $3.23.

Western Digital (WDC) is up more than +7% after reporting Q4 adjusted EPS of $1.66, above the consensus of $1.48, and forecast Q1 adjusted EPS of $1.39-$1.69, the midpoint above the consensus of $1.42. 

CVS Health (CVS) is up more than +6% after reporting Q2 net revenue of $98.92 billion, stronger than the consensus of $94.61 billion, and raising its full-year revenue forecast to $391.5 billion from a previous estimate of $382.6 billion, above the consensus of $386.66 billion. 

Align Technology (ALGN) is down more than -30% to lead losers in the S&P 500 after reporting Q2 net revenue of $1.01 billion, weaker than the consensus of $1.06 billion, and forecasting Q3 net revenue of $965 million-$985 million, well below the consensus of $1.04 billion. 

ARM Holdings Plc (ARM) is down more than -10% to lead losers in the Nasdaq 100 after forecasting Q2 adjusted ESP of 29 cents-37 cents, the midpoint below the consensus of 35 cents. 

Baxter International (BAX) is down more than -21% after reporting Q2 sales from continuing operations of $2.81 billion, below the consensus of $2.82 billion, and cut its full-year adjusted EPS forecast to $2.42-$2.52 from a previous forecast of $2.47-$2.55.

International Paper (IP) is down more than -5% after reporting Q2 adjusted operating EPS of 20 cents, well below the consensus of 40 cents.

Lam Research (LRCX) is down more than -4% after the company said it expects Q1 revenue to ease from current-quarter levels, with Chinese customers potentially scaling back after a spending spree. 

Qualcomm (QCOM) is down more than -4% after reporting Q3 handset revenue of $6.33 billion, below the consensus of $6.48 billion.

UnitedHealth Group (UNH) is down more than -4% to lead losers in the Dow Jones Industrials after Baird downgraded the stock to underperform from neutral with a price target of $198.

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).