Stocks Rally on Positive Corporate News and Fed Rate Cut Hopes

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.73%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.29%.  September E-mini S&P futures (ESU25) rose +0.72%, and September E-mini Nasdaq futures (NQU25) rose +1.21%.

Stock indexes rallied Wednesday on some positive corporate news.  Arista Networks closed up more than +17% after its Q3 revenue forecast exceeded expectations.  Also, Match Group closed up more than +10% after projecting a stronger-than-expected Q3 sales forecast.  In addition, Apple rose +5% to lead megacap technology stocks higher after President Trump said the company will announce that it will commit to spending another $100 billion on domestic manufacturing.

Speculation that weaker-than-expected US economic news will push the Fed to lower interest rates as soon as next month is also supporting stocks.  Tuesday’s unexpected decline in US services activity added to last Friday’s weak payroll and manufacturing reports.  The chances of a Fed rate cut at the September FOMC meeting rose to 95% Wednesday from 40% last Friday.

Also, dovish Fed comments on Wednesday bolstered speculation about a Fed rate cut.  Minneapolis Fed President Neel Kashkari said, “The economy is slowing and in the near term it may become appropriate to start adjusting the federal funds rate lower.” Additionally, Fed Governor Lisa Cook said last Friday’s US July jobs report is “concerning” and that “the revisions are somewhat typical of turning points” in the US economy.

The US MBA mortgage applications index rose +3.1% in the week ended August 1, with the purchase mortgage sub-index up +1.5% and the refinancing mortgage sub-index up +5.2%.  The average 30-year fixed rate mortgage fell -6 bp to 6.77% from 6.83% in the prior week.

In recent tariff news, President Trump announced Wednesday that he will double tariffs on US imports from India to 50% from the current 25% tariff, due to India’s purchases of Russian oil.  On Tuesday, Mr. Trump said that US tariffs on semiconductor and pharmaceutical imports would be announced “within the next week or so.” Last Thursday, President Trump raised tariffs on some Canadian goods to 35% from 25% and announced a 10% global minimum, along with tariffs of 15% or higher 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. 

The markets this week will focus on earnings reports and any fresh tariff or trade news. On Thursday, weekly initial unemployment claims are expected to increase by +3,000 to 221,000.  Also on Thursday, Q2 nonfarm productivity is expected to be +2.0% with unit labor costs rising +1.5%.

Federal funds futures prices are discounting the chances for a -25 bp rate cut at 95% at the September 16-17 FOMC meeting and 68% at the following meeting on October 28-29.

Q2 earnings reports released thus far suggest that S&P 500 earnings are on track to rise +9.1% for the second quarter, much better than the pre-season expectations of +2.8% y/y and the most in four years, according to Bloomberg Intelligence.  With over 67% of S&P 500 firms having reported Q2 earnings, around 83% exceeded profit estimates. 

Overseas stock markets on Wednesday settled higher.  The Euro Stoxx 50 closed up +0.26%.  China’s Shanghai Composite closed up +0.45%.  Japan’s Nikkei Stock 225 closed up +0.60%.

Interest Rates

September 10-year T-notes (ZNU25) on Wednesday closed down -2 ticks.  The 10-year T-note yield rose +0.6 bp to 4.216%.  Supply pressures weighed on T-notes as the Treasury auctioned $42 billion of 10-year T-notes Wednesday as part of this week’s $125 billion auctions of T-notes and T-bonds in the August quarterly refunding.  Also, strength in stocks on Wednesday has reduced safe haven demand for T-notes.  Weak demand for the Treasury’s $42 billion auction of 10-year T-notes was bearish for T-note prices as the auction had a bid-to-cover ratio of 2.35, well below the 10-auction average of 2.58.

Losses in T-notes were limited due to dovish Fed comments from Minneapolis Fed President Neel Kashkari and Fed Governor Lisa Cook, who signaled their support for interest rate cuts.  Also, Wednesday’s 1% fall in crude oil prices undercut inflation expectations and was supportive for T-notes.

European government bond yields on Wednesday moved higher.  The 10-year German bund yield rose +2.6 bp to 2.650%.  The 10-year UK gilt yield rose +1.0 bp to 4.526%.

Eurozone June retail sales rose +0.3% m/m, right on expectations.

German June factory orders unexpectedly fell by -1.0% m/m, weaker than expectations of a +1.1% m/m increase and the biggest decline in 5 months.

ECG Governing Council member Holzmann said, “In my view, there is no longer any reason for the ECB to lower interest rates further and we should wait and see what economic developments arise, particularly outside Europe, and how we respond to them.”

Swaps are discounting the chances at 13% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

Astera Labs (ALAB) closed up more than +27% after reporting Q2 gross margin of 76%, better than the consensus of 74%. 

RingCentral (RNG) closed up more than +25% after reporting Q2 adjusted EPS of $1.06, above the consensus of $1.02, and raising its full-year adjusted EPS forecast to $4.20-$4.32 from a previous forecast of $4.13-$4.27, stronger than the consensus of $4.21. 

Shopify (SHOP) closed up more than +21% to lead gainers in the Nasdaq 100 after reporting Q2 revenue of $2.68 billion, stronger than the consensus of $2.55 billion. 

Arista Networks (ANET) closed up more than +17% to lead gainers in the S&P 500 after reporting Q2 revenue of $2.20 billion, above the consensus of $2.11 billion, and forecasting Q3 revenue of $2.25 billion, stronger than the consensus of $2.13 billion.  

Assurant (AIZ) closed up more than +11% after reporting Q2 adjusted EPS of $5.10, well above the consensus of $4.46.

Match Group (MTCH) closed up more than +10% after reporting Q2 revenue of $863.7 million, better than the consensus of $853.9 million, and forecasting Q3 revenue of $910 million-$920 million, stronger than the consensus of $889.8 million.

Global Payments (GPN) closed up more than +8% after reporting Q2 adjusted EPS including SBC of $3.10, better than the consensus of $3.08.

Apple (AAPL) closed up more than +5% to lead gainers in the Dow Jones industrials after President Trump said the company will announce that it will commit to spending another $100 billion on domestic manufacturing.

Super Micro Computer (SMCI) closed down more than -18% to lead losers in the S&P 500 after reporting Q4 net sales of $5.76 billion, weaker than the consensus of $6.01 billion, and forecast Q1 set sales of $6.0 billion to $7.0 billion, the midpoint below the consensus of $6.59 billion. 

Advanced Micro Devices (AMD) closed down more than -6% to lead chip makers lower after reporting Q2 adjusted EPS of 48 cents, below the consensus of 49 cents, and saying it was unable to give a clear outlook for resuming sales in China.  Also, Marvell Technology (MRVL), Microchip Technology (MCHP), and ARM Holdings Plc (ARM) closed down more than -1%.

Coca-Cola Europacific (CCEP) closed down more than -7% to lead losers in the Nasdaq 100 after cutting its full-year revenue growth forecast to +3% to +4%, from a previous forecast of +4%.

Kemper Corp (KMPR) closed down more than -21% after Piper Sandler double-downgraded the stock to underweight from overweight with a price target of $50. 

Vertex (VERX) closed down more than -19% after reporting Q2 software subscription revenue of $157.8 million, below the consensus of $158.9 million, and cutting its full-year revenue forecast to $750 million-$754 million from a previous forecast of $760 million-$768 million, weaker than the consensus of $763.4 million. 

Snap (SNAP) closed down more than -17% after reporting Q2 revenue of $1.34 billion, below the consensus of $1.35 billion. 

DaVita (DVA) closed down more than -9% after the company noted in an earnings call that Q2 US treatments per day fell -1.1% y/y, weaker than expectations of -0.50% y/y. 

Emerson Electric (EMR) closed down more than -4% after reporting Q3 net sales of $4.55 billion, weaker than the consensus of $4.60 billion. 

Earnings Reports (8/7/2025)

Akamai Technologies Inc (AKAM), Alliant Energy Corp (LNT), Becton Dickinson & Co (BDX), Block Inc (XYZ), ConocoPhillips (COP), Consolidated Edison Inc (ED), Constellation Energy Corp (CEG), Datadog Inc (DDOG), Eli Lilly & Co (LLY), EOG Resources Inc (EOG), EPAM Systems Inc (EPAM), Erie Indemnity Co (ERIE), Evergy Inc (EVRG), Expedia Group Inc (EXPE), Gen Digital Inc (GEN), Gilead Sciences Inc (GILD), GoDaddy Inc (GDDY), Insulet Corp (PODD), Kenvue Inc (KVUE), Live Nation Entertainment Inc (LYV), Martin Marietta Materials Inc (MLM), Microchip Technology Inc (MCHP), Monster Beverage Corp (MNST), Motorola Solutions Inc (MSI), Parker-Hannifin Corp (PH), Ralph Lauren Corp (RL), Sempra (SRE), Solventum Corp (SOLV), Take-Two Interactive Software (TTWO), Targa Resources Corp (TRGP), Trade Desk Inc/The (TTD), Viatris Inc (VTRS), Vistra Corp (VST), Warner Bros Discovery Inc (WBD), Wynn Resorts Ltd (WYNN), Zimmer Biomet Holdings Inc (ZBH).