Stocks Are Undercut by US Consumer Sentiment Decline

The S&P 500 Index ($SPX) (SPY) is down -0.26%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.45%.  September E-mini S&P futures (ESU25) are down -0.29%, and September E-mini Nasdaq futures (NQU25) are down -0.56%. 

Stocks are seeing downward pressure today after the weaker-than-expected US consumer sentiment report.  The rest of today's US economic news was largely in line with market expectations, and the US retail sales report was supportive of the US economic growth outlook. US stocks were undercut by a weaker global economic outlook after weak Chinese economic reports today.

The markets are awaiting the outcome of this afternoon's Trump-Putin summit, which will begin at "around 3 pm ET" (11 AM Anchorage time), followed by a joint press conference, according to Reuters' description of the White House schedule.  The outcome could have macroeconomic implications regarding tariffs and oil prices, and could, of course, have major implications for European security.

Today's headline US retail sales report was slightly weaker than market expectations, but there was an upward revision for June, leaving the report roughly neutral for the markets.  The markets welcomed the report amidst worries about how US retail spending will hold up with a weaker labor market and consumer uncertainty about inflation and the economic outlook.  July US retail sales rose +0.5% m/m, slightly weaker than market expectations of +0.6%, although June was revised higher to +0.9% from +0.6%.  July retail sales ex-autos rose +0.3% m/m, in line with market expectations and down from June's revised +0.8% (preliminary +0.5%).

The University of Michigan's preliminary-Aug US consumer sentiment index fell by -3.1 points to 58.6, which was weaker than expectations for a +0.3 point increase to 62.0.  The survey showed that US consumer expectations for inflation rose to +4.9% over the next year and +3.9% for the next 5-10 years.  The survey also found that 58% of consumers plan to cut spending due to inflation.

July US import prices rose +0.4% m/m, stronger than expectations of +0.1%.  On a year-on-year basis, July US import prices strengthened to -0.2% from a revised -0.5% y/y in June.  July US import prices ex-petroleum rose +0.3% m/m versus June's revised -0.2% (preliminary unchanged).

Today's July US industrial production report of -0.1% m/m was slightly weaker than expectations of unchanged, although June was revised upward to +0.4% m/m from +0.3%.  July manufacturing production was unchanged m/m, matching market expectations, while July was revised higher to +0.3% from +0.1%.

Today's Aug Empire manufacturing index of 11.9 was substantially stronger than market expectations of zero and was up from July's 5.5.

Chicago Fed President Austan Goolsbee delivered mildly hawkish remarks today, stating that he would like to see at least one more inflation report to ensure that persistent inflation pressures aren't emerging.  He expressed concern about the high service inflation data in the July CPI report, but noted the importance of not placing too much weight on a single month's data.

The markets today will continue to adjust to the inflation outlook following Thursday's hawkish PPI report.  The July final-demand PPI surged to +3.3% y/y (nominal) and +3.7% y/y (core).  The PPI report suggested that the markets were overly optimistic about Tuesday's CPI report and that companies are passing through tariffs at the wholesale level at a higher pace than earlier thought.  Following the report, the markets erased any hopes of a -50 bp rate cut at the Fed's September meeting and pulled back expectations for a -25 bp rate cut to 93% from 100% before the report. 

Weak Chinese economic reports overnight were negative for the global economic growth outlook.  China's economy is weakening due to US tariffs and the Chinese government's attempt to crack down on excessive competition that has driven prices to loss-making levels in some industries.  China's July retail sales report of +3.7% y/y was weaker than expectations of +4.6% and down from June's +4.8%.  China's July industrial production report of +5.7% y/y was weaker than expectations of +6.0% and was down from June's +6.8%.  China's July jobless rate rose to 5.2% from June's +5.0% and was higher than expectations.  China's July property investment fell -12.0% ytd y/y from -11.2% in June and was weaker than expectations of -11.4%. 

Regarding tariffs, President Trump today said, "I'll be setting tariffs next week and the week after on steel and on, I would say chips – chips and semiconductors, we'll be setting sometime next week, week after." Mr. Trump last week said he planned a 100% tariff on semiconductors but would exempt companies that move chip manufacturing to the US.  Mr. Trump also mentioned 200% or 300% tariffs on chips.

In other recent tariff news, Mr. Trump on Tuesday extended the tariff truce with China for another 90 days until November.  Mr. Trump announced last 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.  Last Tuesday, Mr. Trump said that US tariffs on pharmaceutical imports would be announced "within the next week or so." 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 93% at the September 16-17 FOMC meeting and at 53% for a second -25 bp rate cut at the following meeting on October 28-29.

Earnings reports indicate that S&P 500 earnings for Q2 are on track to rise +9.1% y/y, much better than the pre-season expectations of +2.8% y/y and the most in four years, according to Bloomberg Intelligence.  With over 82% of S&P 500 firms having reported Q2 earnings, about 82% of companies exceeded profit estimates. 

Overseas stock markets are higher.  The Euro Stoxx 50 is up +0.21%.  China's Shanghai Composite closed up +0.83% but remained below Thursday's 3.75-year high.  Japan's Nikkei Stock 225 rallied +1.71% but remained below Wednesday's record high.

Interest Rates

September 10-year T-notes (ZNU25) today are down -0.5 tick, and the 10-year T-note yield is up +1.6 bp at 4.300%.  T-note prices are little changed after today's economic news was largely neutral, except for the bullish US consumer sentiment report.  Bearish factors include some carry-over negativity from Thursday's hawkish PPI report.  In a bullish factor, the 10-year breakeven inflation expectations rate today is down -1.6 bp at 2.380%. 

European government bond yields are higher.  The 10-year German bund yield is up +6.5 bp at 2.777%.  The 10-year UK gilt yield is up +4.1 bp at 4.682%.

Swaps are discounting the chances at 5% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

The Magnificent Seven are mixed today.  The largest decliner is Nvidia (NVDA) with a loss of -1.35%.  The largest gainers are Alphabet (GOOG) and Meta (META), with gains of more than +1%.

The Dow Jones Industrial Average is showing relative strength today compared to the broader indexes due to a +13% rally in UnitedHealth Group (UNH) and a rally of more than +3% in Salesforce (CRM).

Chip stocks are trading mostly lower today, led by a decline of more than -13% in Applied Materials and losses of around -7% in KLA-Tencor (KLAC) and Lam Research (LRCX). 

On the positive side for the chip sector, Intel (INTC) is up more than +4% after a Bloomberg report said the Trump administration is investigating using US Chips Act funds to take a US government stake in Intel.

Applied Materials (AMAT) is down more than -12% after disappointing management guidance.

Bitcoin (^BTCUSD) is down -0.5%, and crypto stocks are trading lower, led by a sell-off of more than -7% in Riot Platforms (RIOT) and a -3% sell-off in Strategy (MSTR).

UnitedHealth Group (UNH), Lennar (LEN), and DR Horton (DHI) are seeing support today after a 13F filing showed that Warren Buffett's Berkshire Hathaway bought shares in the companies during Q2.  UnitedHealth Group (UNH) is up more than +12% today since 13F filings showed that David Tepper's Appaloosa Management also boosted its holdings in the health care insurer. 

Sandisk (SNDK) is down more than -5% after issuing disappointing management guidance.

Target (TGT) is down more than -1% after a downgrade by Bank of America to underperform from neutral.

Earnings Reports (8/15/2025)

Dillard's Inc (DDS), SailPoint Inc (SAIL), Flowers Foods Inc (FLO).