Stocks Erase Early Gains as Chip Makers and Big Pharma Retreat

The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.37%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.74%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.55%.  September E-mini S&P futures (ESU25) fell -0.43%, and September E-mini Nasdaq futures (NQU25) fell -0.60%.

Stock indexes gave up an early advance on Thursday and settled lower, with the Dow Jones Industrials falling to a 2-week low.  ARM Holdings Plc plunged more than -13% to weigh on chip stocks after the company forecast Q2 adjusted EPS below the consensus.  Also, pharmaceutical companies retreated Thursday to weigh on the overall market after President Trump sent letters to 17 drug makers, demanding they slash drug prices. 

Stocks on Thursday initially moved higher, with the S&P 500 and Nasdaq 100 posting new record highs.  Stellar earnings results from Microsoft and Meta Platforms lifted the broader market early Thursday after they boosted their capital spending plans and pledged to continue investing in artificial intelligence.  

Thursday's economic news was mixed for stocks as reports showed a resilient labor market, although consumer spending was weaker than expected and price pressures and labor costs remained sticky.

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 said Thursday that 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.  Finally, President Trump extended Mexico's current tariff rates for 90 days to allow more time for trade negotiations.

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 42% 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 55% of S&P 500 firms having reported, around 82% exceeded profit estimates. 

Overseas stock markets on Thursday settled mixed.  The Euro Stoxx 50 fell from a 2.5-week high and closed down -1.36%.  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) Thursday closed up +2 ticks.  The 10-year T-note yield fell -0.6 bp to 4.365%.  T-notes posted modest gains on Thursday due to some positive carryover from a rally in 10-year UK gilts to a 3.5-week high.  Also, falling inflation expectations were supportive for T-notes after the 10-year breakeven inflation rate fell to a 1-week low Thursday of 2.381%.  In addition, month-end buying of longer-term government debt securities by bond fund managers to extend duration and balance their bond portfolios was 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 by +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 10% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

ARM Holdings Plc (ARM) closed down more than -13% to lead losers in the Nasdaq 100 and lead chip stocks lower after forecasting Q2 adjusted EPS of 29 cents-37 cents, the midpoint below the consensus of 35 cents.  Also, GlobalFoundries (GFS) closed down more than -5%, and KLA Corp (KLAC), Applied Materials (AMAT), Micron Technology (MU), and Texas Instruments (TXN) closed down more than -4%.  In addition, Microchip Technology (MCHP), ASML Holding NV (ASML), and NXP Semiconductors NV (NXPI) closed down more than -3%.

Pharmaceutical companies retreated Thursday to weigh on the overall market after President Trump sent letters to 17 drug makers, demanding they slash drug prices. As a result, Bristol-Myers Squibb (BMY) closed down more than -5% and Merck & Co (MRK) closed down more than -4%.  Also, Eli Lilly (LLY) closed down more than -3%, and Pfizer (PFE), Amgen (AMGN), Gilead Sciences (GILD), and Vertex Pharmaceuticals (VRTX) closed down more than -2%. 

Align Technology (ALGN) closed down more than -36% 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. 

Baxter International (BAX) closed down more than -22% 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) closed down more than -12% after reporting Q2 adjusted operating EPS of 20 cents, well below the consensus of 40 cents.

Qualcomm (QCOM) closed down more than -7% after reporting Q3 handset revenue of $6.33 billion, below the consensus of $6.48 billion.

UnitedHealth Group (UNH) closed down more than -6% to lead losers in the Dow Jones Industrials after Baird downgraded the stock to underperform from neutral with a price target of $198.

Lam Research (LRCX) closed 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. 

Meta Platforms (META) closed 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. 

EBay (EBAY) closed up more than +18% 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. 

CH Robinson Worldwide (CHRW) closed up more than +18% 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.

Carvana (CVNA) closed up more than +17% after reporting Q2 revenue of $4,84 billion, well above the consensus of $4.57 billion. 

Western Digital (WDC) closed up more than +10% 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. 

Norwegian Cruise Line Holdings (NCLH) closed up more than +9% 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) closed up more than +7% after reporting Q2 EPS of $3.86, well above the consensus of $3.23.

Microsoft (MSFT) closed up more than +3% to lead gainers in the Dow Jones Industrials after reporting Q4 revenue of $76.44 billion, stronger than the consensus of $73.89 billion. 

Earnings Reports (8/1/2025)

Cboe Global Markets Inc (CBOE), Chevron Corp (CVX), Church & Dwight Co Inc (CHD), Colgate-Palmolive Co (CL), Dominion Energy Inc (D), Exxon Mobil Corp (XOM), Franklin Resources Inc (BEN), Kimberly-Clark Corp (KMB), Linde PLC (LIN), LyondellBasell Industries NV (LYB), Moderna Inc (MRNA), Regeneron Pharmaceuticals Inc (REGN), T Rowe Price Group Inc (TROW), WW Grainger Inc (GWW).