Stocks Rally on Positive Tariff News ad Rate Cut Hopes

The S&P 500 Index ($SPX) (SPY) today is up +0.48%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.39%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.71%.  September E-mini S&P futures (ESU25) are up +0.53%, and September E-mini Nasdaq futures (NQU25) are up +0.79%.

Stock indexes are moving higher today, led by strength in technology stocks, after President Trump announced late Wednesday that companies would be eligible for exemptions from his proposed 100% tariff on chip imports if they demonstrate a commitment to building their products in the US.   Market sentiment also improved on an easing of geopolitical risks after the Russian government confirmed that Presidents Putin and Trump will meet for summit talks on ending the war in Ukraine in the next few days. 

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.  Late Wednesday, San Francisco Fed President Mary Daly said, "The labor market has softened, and I would see additional slowing as unwelcome.  All this means that the Fed will likely need to adjust monetary policy in the coming months." The chances of a Fed rate cut at the September FOMC meeting rose to 92% from 40% last Friday.

Today's weekly news on jobless claims shows some weakness in the labor market, which may push the Fed to cut interest rates sooner rather than later.  US weekly initial unemployment claims rose +7,000 to 226,000, showing a weaker labor market than expectations of 222,000. Weekly continuing claims rose +38,000 to a 3.75-year high of 1.974 million, higher than expectations of 1.950 million, a sign that those currently unemployed are finding it longer to secure new employment.

US Q2 nonfarm productivity rose +2.4%, higher than expectations of +2.0%.  Q2 unit labor costs rose +1.6%, slightly stronger than expectations of +1.5%.

Chinese trade news was better than expected, a supportive factor for global economic growth. China Jul exports rose +7.2% y/y, stronger than expectations of +5.6% y/y.  Also, China's Jul imports unexpectedly rose +4.1% y/y, the most in a year and stronger than expectations of a -1.0% y/y decline.

In recent tariff news, President Trump announced Wednesday that he will impose a 100% tariff on semiconductor imports.  Still, companies would be eligible for exemptions if they demonstrate a commitment to building their products in the US.  However, the US will levy a separate tax on imports of electronic products that employ semiconductors.  Also, 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 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 today.  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 91% at the September 16-17 FOMC meeting and 66% 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 today are higher.  The Euro Stoxx 50 is up sharply +1.57%.  China's Shanghai Composite climbed to a 10-month high and closed up +0.16%.  Japan's Nikkei Stock 225 rose to a 1.5-week high and closed up +0.65%.

Interest Rates

September 10-year T-notes (ZNU25) today are down by -1 tick.  The 10-year T-note yield is up +0.3 bp to 4.229%.  T-notes are slightly lower today due to the strength in stocks. Also, supply pressures are undercutting T-notes ahead of today's $25 billion Treasury auction of 30-year T-bonds that will conclude this week's $125 billion auctions of T-notes and T-bonds for the August quarterly refunding. 

Losses in T-notes are limited after weekly US jobless claims rose more than expected, a dovish factor for Fed policy.  Also, dovish comments from San Francisco Fed President Mary Daly supported T-notes when she said the Fed may need to cut interest rates in the "coming months."

European government bond yields today are mixed.  The 10-year German bund yield is down -0.1 bp to 2.649%.  The 10-year UK gilt yield is up +3.5 bp to 4.561%.

German Jun industrial production fell -1.9% m/m, weaker than expectations of -0.5% m/m and the largest decline in 11 months.

German trade news was better than expected as German Jun exports rose +0.8% m/m, stronger than expectations of +0.4% m/m.  Also, Jun imports rose +4.2% m/m, stronger than expectations of +0.8% m/m and the largest increase in 5 months.

As expected, the Bank of England (BOE) lowered the official bank rate by -25 bp to 4.00% from 4.25%.  BOE Governor Andrew Bailey said, "Interest rates are still on a downward path, but any future rate cuts will need to be made gradually and carefully."

Swaps are discounting the chances at 12% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

Chip makers are climbing today after President Trump said companies that move production back to the US will be exempt from a planned 100% tariff on chip imports.  Applied Materials (AMAT) is up more than +4%.  Also, Advanced Micro Devices (AMD), ASML Holdings NV (ASML), and Micron Technology (MU) are up more than +3%.  In addition, Lam Research (LRCX), ON Semiconductor (ON), KLA Corp (KLAC), Marvell Technology (MRVL), Microchip Technology (MCHP), and ARM Holdings Plc (ARM) are up more than +2%.

Duolingo (DUOL) is up more than +31% after reporting Q2 revenue of $252.3 million, well above the consensus of $240.6 million, and raised its full-year revenue forecast to $1,01 billion-$1.02 billion from a previous forecast of $987 million-$996 million, stronger than the consensus of $996.5 million. 

Dutch Bros (BROS) is up more than +20% after reporting Q2 revenue of $415.8 million, above the consensus of $403.8 million, and raising its full-year revenue forecast to $1.59 billion-$1.60 billion from $1.56 billion-$1.58 billion. 

Celsius Holdings (CELH) is up more than +20% after reporting Q2 revenue of $739.3 million, well above the consensus of $652.4 million. 

Zimmer Biomet Holdings (ZBH) is up more than +10% after reporting Q2 net sales of $2.08 billion, above the consensus of $2.06 billion, and raising its full-year revenue forecast to +6.7% to +7.7% from a previous estimate of +5.7% to +8.2%

APA Corp (APA) is up more than +8% after reporting Q2 adjusted EPS of 87 cents, well above the consensus of 48 cents.

Datadog (DDOG) is up more than +5% after reporting Q2 adjusted EPS of 46 cents, better than the consensus of 42 cents, and raising its full-year adjusted EPS forecast to $1.80-$1.83 from a previous forecast of $1.67-$1.71, stronger than the consensus of $1.71.  

Sarepta Therapeutics (SRPT) is up more than +10% after reporting Q2 revenue of $611.1 million, well above the consensus of $530.1 million. 

DoorDash (DASH) is up more than +3% after reporting Q2 revenue of $3.28 billion, better than the consensus of $3.17 billion.

Fortinet (FTNT) is down more than -26% to lead losers in the S&P 500 and Nasdaq 100 after narrowing its full-year revenue forecast to $6.68 billion-$6.83 billion from a previous forecast of $6.65 billion-$6.85 billion, the midpoint below the consensus of $6.76 billion.

Crocs (CROX) is down more than -24% after forecasting Q3 adjusted operating margin of 18% to 19%, below the consensus of 23.2%. 

Eli Lilly (LLY) is down more than -13% after reporting patients shed 11% of their body weight in a late-stage study of its experimental weight loss pill orforglipron, below the 14% to 15% that patients lost taking the rival weight loss drug Wegovy made by Novo Nordisk A/S. 

Symbotic (SYM) is down more than -16% after forecasting Q4 total revenue of $590 million-$610 million, weaker than the consensus of $634.4 million.   

Elf Beauty (ELF) is down more than -11% after declining to give an outlook for fiscal 2026, citing a wide range of potential outcomes related to tariffs. 

CF Industries Holdings (CF) is down more than -10% after reporting Q2 EPS of $2.37, below the consensus of $2.51.

Exact Sciences (EXAS) is down more than -9% after agreeing to pay up to $885 million to in-license a blood-based colorectal cancer test from Freenome. 

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).