Tariffs and Economic Jitters Hammer Stocks

The S&P 500 Index ($SPX) (SPY) today is down -1.60%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.35%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.77%.  September E-mini S&P futures (ESU25) are down -1.67%, and September E-mini Nasdaq futures (NQU25) are down -1.87%.

Stock indexes are sharply lower today, with the S&P 500 and Nasdaq 100 falling to 2-week lows and the Dow Jones Industrials falling to a 5-week low.  Stocks are slumping today after President Trump's sweeping import tariffs raised concern about the outlook for global economic growth. Late Thursday, Mr. Trump announced a slew of new tariffs, including a 10% global minimum and 15% or higher tariffs for countries with trade surpluses with the US.  Also, Amazon.com is down more than -7% to weigh on technology stocks after it projected weaker-than-expected Q3 operating income. 

Stocks also tumbled today on signs of weakness in the US economy after the monthly July payroll report showed US job growth slowed more than expected, and the Jul ISM manufacturing index showed manufacturing activity unexpectedly contracted the most in 9 months.

However, on the positive side, bond yields sank on the weaker-than-expected US economic reports. The 10-year T-note yield fell to a 1-month low of 4.224% as the weaker-than-expected economic reports boosted the chances of a Fed rate cut at the September FOMC meeting to 84% from 40% before the reports were released.

Jul nonfarm payrolls rose by +73,000, weaker than expectations of +104,000, and Jun nonfarm payrolls were revised sharply downward to +14,000 from the previously reported +147,000.  The US Jul unemployment rate rose +0.1 to 4.2%, right on expectations. 

Jul average hourly earnings rose +3.9% y/y, stronger than expectations of +3.8% y/y.

The US Jul ISM manufacturing index unexpectedly fell -1.0 to 48.0, weaker than expectations of an increase to 49.5 and the steepest pace of contraction in 9 months.

US Jun construction spending unexpectedly fell -0.4% m/m, weaker than expectations of no change.

The University of Michigan US Jul consumer sentiment index was revised lower to 61.7 from 61.8, weaker than expectations of an upward revision to 62.0. 

Atlanta Fed President Raphael Bostic said inflation is still further from target than employment, and he's not ready to increase projections for 2025 interest rate cuts.

Cleveland Fed President Beth Hammack said the US labor market still appears healthy, though today's fresh job numbers constituted a "disappointing report to be sure."

In the latest tariff news, President Trump late Thursday raised tariffs on some Canadian goods to 35% from 25% and announced a 10% global minimum and 15% or higher tariffs for countries with trade surpluses with the US, effective after midnight on August 7.  According to Bloomberg Economics, the average US tariff will rise to 15.2% if rates are implemented as announced, up from 13.3% earlier, and significantly higher than the 2.3% in 2024 before the tariffs were announced. 

Federal funds futures prices are discounting the chances for a -25 bp rate cut at 85% at the September 16-17 FOMC meeting and 68% at the following meeting on October 28-29.

This week was 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 today are lower.  The Euro Stoxx 50 plunged to a 3-month low and is down sharply by -2.80%.  China's Shanghai Composite slid to a 1.50-week low and closed down -0.37%.  Japan's Nikkei Stock 225 closed down -0.66%.

Interest Rates

September 10-year T-notes (ZNU25) today are up +29 ticks.  The 10-year T-note yield is down -12.9 bp to 4.245%.  Sep T-notes recovered from overnight losses and rallied to a 1-month high today, and the 10-year T-note yield fell to a 1-month low of 4.224%. T-notes rallied sharply today on signs of weakness in the US labor market after Jul nonfarm payrolls rose less than expected and Jun was revised sharply lower.  T-notes raced to their highs after the Jul ISM manufacturing index unexpectedly contracted by the most in 9 months.  The weak payrolls and ISM manufacturing reports boosted the chance of a Fed rate cut at next month's FOMC meeting to 85% from 40% before the report.

T-notes initially moved lower today on inflation risks following President Trump's announcement of new tariffs on all countries with trade surpluses against the US.  Also, today's payroll report, which showed US Jul average hourly earnings rose more than expected, is hawkish for Fed policy. 

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 1-week low of 2.639% and is down -2.5 bp to 2.670%.  The 10-year UK gilt yield fell to a 4-week low of 4.509% and is down -3.4 bp to 4.534%.

Eurozone Jul CPI rose +2.0% y/y, stronger than expectations of +1.9% y/y.  Jul core CPI rose +2.3% y/y, right on expectations. 

The German Jul S&P manufacturing PMI was revised downward by 0.1 to 49.1 from the previously reported 49.2.

The UK Jul S&P manufacturing PMI was revised downward by -0.2 to 48.0 from the previously reported 48.2.

Swaps are discounting the chances at 16% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

Amazon.com (AMZN) is down more than -7% to lead losers in the Dow Jones Industrials and Nasdaq 100 after forecasting Q3 operating income of $15.5 billion-$20.5 billion, the midpoint below the consensus of $19.42 billion.

Chip stocks are under pressure today, weighing on the overall market.  Marvell Technology (MRVL) is down more than -7%.  Also, Micron Technology (MU), Microchip Technology (MCHP), Advanced Micro Devices (AMD), GlobalFoundries (GFS), and ARM Holdings Plc (ARM) are down more than -3%.  In addition, Broadcom (AVGO), Intel (INTC), and NXP Semiconductors NV (NXPI) are down more than -2%. 

Fluor (FLR) is down more than -32% after reporting Q2 adjusted EPS of 43 cents, weaker than the consensus of 56 cents, and cutting its full-year adjusted EPS forecast to $1.95-$2.15 from a previous estimate of $2.25-$2.75, well below the consensus of $2.53. 

Eastman Chemical (EMN) is down more than -21% to lead losers in the S&P 500 after reporting Q2 adjusted EPS of $1.60, weaker than the consensus of $1.74. 

Coinbase Global (COIN) is down more than -14% after reporting Q2 total revenue of $1.50 billion, below the consensus of $1.59 billion. 

WW Grainger (GWW) is down more than -7% after reporting Q2 adjusted EPS of $9.97, below the consensus of $10.06, and cutting its full-year adjusted EPS forecast to $38.50-$40.25 from a previous forecast of $39.00-$41.50.

Moderna (MRNA) is down more than -7% after narrowing its full-year revenue forecast to $1.5 billion to $2.2 billion from a previous forecast of $1.5 billion to $2.5 billion, weaker than the consensus of $2.07 billion.

Avis Budget Group (CAR) is down more than -4% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $105.

Reddit (RDDT) is up more than +20% after reporting Q2 revenue of $499.6 million, stronger than the consensus of $425.3 million, and forecasting Q3 revenue of $535 million-$545 million, well above the consensus of $472.7 million.

Homebuilding stocks are climbing today after the 10-year T-note yield fell to a 1-month low, a supportive factor for housing demand.  DR Horton (DHI) is up more than +4%, Lennar (LEN) and PulteGroup (PHM) are up more than +3%, and Toll Brothers (TOL) is up more than +2%.  

Monolithic Power Systems (MPWR) is up more than +7% to lead gainers in the S&P 500 after reporting Q2 adjusted EPS of $4.21, stronger than the consensus of $4.12. 

Kimberly-Clark (KMB) is up more than +4% to lead gainers in the S&P 500 after reporting Q2 adjusted EPS of $1.92, above the consensus of $1.68. 

AES Corp (AES) is up more than 3% after forecasting full-year adjusted EPS of $2.10 to $2.26, the midpoint above the consensus of $2.14.

Eli Lilly (LLY) is up more than +2% after the Washington Post reported that the US government plans to experiment with covering weight-loss drugs for federal health programs. 

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).