Stocks Finish Mostly Lower on Tech Stock Weakness

The S&P 500 Index ($SPX) (SPY) on Wednesday closed down by -0.24%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down by -0.58%.  September E-mini S&P futures (ESU25) fell -0.29%, and September E-mini Nasdaq futures (NQU25) fell -0.64%. 

Stock indexes on Wednesday extended Tuesday's slide, with the S&P 500 falling to a 1.5-week low and the Nasdaq 100 dropping to a 2-week low.  The weakness in the Magnificent Seven technology companies and the selloff in chip stocks weighed on the overall market.  Also, disappointing corporate news was negative for stocks, as Target fell more than -6% after forecasting a bigger-than-expected decline in full-year sales.  Estee Lauder fell more than -3% after forecasting weaker-than-expected 2026 EPS.

Walmart rose more than +1% on Wednesday to keep the Dow Jones Industrials in positive territory.  Walmart settled higher on expectations that its Q2 earnings report, which will be released before Thursday's open, will show comparable-store sales coming in ahead of estimates.  The consensus is that total Q2 US comparable sales ex-gasoline rose +4.21%.  

US MBA mortgage applications fell -1.4% in the week ended August 15, with the purchase mortgage sub-index up +0.1% and the refinancing sub-index down -3.1%.  The average 30-year fixed rate mortgage rose +1 bp to 6.68% from 6.67% in the prior week.

Wednesday's minutes of the July 29-30 FOMC meeting were slightly hawkish and negative for stocks.  The minutes showed that most policymakers judged the upside risk to inflation as a greater risk than weaker employment, saying the labor market was "solid" but inflation remained "somewhat elevated."

Diplomatic talks over the war in Ukraine continue to make headway.  President Trump is pushing for a summit between Presidents Putin and Zelenskiy soon, and European leaders are discussing a plan to send British and French troops to Ukraine as part of a peace agreement.  The outcome of the talks could have macroeconomic implications regarding tariffs and oil prices, and could, of course, have significant consequences for European security. 

The focus of the markets this week will be on any new tariff news and signs of progress toward a Ukraine peace deal.  On Thursday, weekly initial unemployment claims are expected to climb by +1,000 to 225,000, and the Aug Philadelphia Fed business outlook survey is expected to fall to 6.7 from 15.9 in July.  Also, the Aug S&P manufacturing PMI is expected to remain unchanged at 49.8.  In addition, Jul existing home sales are expected to fall -0.3% m/m to 3.92 million.  On Friday, Fed Chair Powell speaks on the economic outlook at the Federal Reserve's annual symposium at Jackson Hole, Wyoming. 

Regarding tariffs, President Trump widened steel and aluminum tariffs to include more than 400 consumer items that contain the metals, such as motorcycles, auto parts, furniture components, and tableware.  The change went into effect on Monday and did not exclude goods already in transit.  Last Friday, Mr. Trump 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 last Tuesday extended the tariff truce with China for another 90 days until November.  On August 6, Mr. Trump announced 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 August 5, 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 84% at the September 16-17 FOMC meeting, down from 93% last Thursday.  The markets are discounting the chances at 55% 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 93% of S&P 500 firms having reported Q2 earnings, about 83% of companies exceeded profit estimates. 

Overseas stock markets on Wednesday settled mixed.  The Euro Stoxx 50 closed down -0.20%.  China's Shanghai Composite climbed to a new 10-year high and closed up +1.04%.  Japan's Nikkei Stock 225 closed down -1.51%.

Interest Rates

September 10-year T-notes (ZNU25) on Wednesday closed up +3 ticks, and the 10-year T-note yield fell -1.5 bp to 4.291%.  Sep T-notes posted modest gains on Wednesday, supported by weakness in equity markets. Also, falling inflation expectations were supportive of T-notes after the 10-year breakeven inflation rate fell to a 2-week low on Wednesday of 2.350%.  T-notes garnered support after the Wall Street Journal reported that President Trump is considering firing Fed Governor Lisa Cook over allegations that she committed mortgage fraud.  If Cook is fired or resigns, Mr. Trump could appoint another Fed Governor who favors his lower interest rate policies.

T-notes fell back from their best levels due to weak demand for the Treasury's $16 billion auction of 20-year T-bonds, which showed the bid-to-cover ratio of 2.54, below the 10-auction average of 2.60.  Also, Wednesday's hawkish minutes of the July 29-30 FOMC meeting weighed on T-note prices. 

European government bond yields on Wednesday moved lower.  The 10-year German bund yield fell -3.3 bp to 2.717%. The 10-year UK gilt yield fell -6.8 bp to 4.672%.

ECB President Lagarde said the Eurozone economy is likely to see slower growth this quarter, with questions over global trade remaining despite recent trade deals with the US reducing uncertainty.

UK Jul CPI rose +3.8% y/y, stronger than expectations of +3.7% y/y and the fastest pace of increase in 1.5 years.  Jul core CPI also rose +3.8% y/y, stronger than expectations of +3.7% y/y.

Swaps are discounting the chances at 7% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

The Magnificent Seven stocks were under pressure on Wednesday, weighing on the broader market.  Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN), and Tesla (TSLA) closed down more than -1%.  Also, Microsoft (MSFT) closed down -0.79%, Meta Platforms (META) closed down -0.50%, and Nvidia (NVDA) closed down -0.14%.  

Weakness in chip stocks is a drag on the overall market.  Intel (INTC) closed down more than -6% to lead losers in the S&P 500 and Nasdaq 100, and Micron Technology (MU) closed down more than -3%.  Also, ARM Holdings Plc (ARM) closed down more than -2%, and Broadcom (AVGO), Marvell Technology (MRVL), and Lam Research (LRCX) closed down more than -1%.

James Hardie Industries Plc (JHX) closed down more than -34% after reporting its Q2 operating profit sank -29% y/y and said difficult economic conditions continue to weigh on homebuyers after recording the slowest spring season in more than twelve years.

La-Z-Boy (LZB) closed down more than -12% after reporting Q1 comparable sales fell -4% y/y versus -3% y/y, and forecast Q2 sales of $510 million-$530 million, the midpoint below the consensus of $528.5 million. 

Target (TGT) closed down more than -6% after forecasting a full-year sales decline of a low single-digit percentage compared to the consensus of a -1.71% decline. 

Estee Lauder (EL) closed down more than -3% after forecasting 2026 adjusted EPS of $1.90-$2.10, weaker than the consensus of $2.16. 

Avis Budget Group (CAR) closed down more than -5%, CarMax (KMX) closed down more than -2%, and Carvana (CVNA) closed down more than -1% after CNBC reported that Hertz Global Holdings will start selling pre-owned cars on Amazon Autos. 

Analog Devices (ADI) closed up more than +6% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q3 revenue of $2.88 billion, better than the consensus of $2.76 billion. 

Hertz Global Holdings (HTZ) closed up more than +6% after CNBC reported the company will start selling pre-owned cars on Amazon Autos. 

Regeneron Pharmaceuticals (REGN) closed up more than +3% after it said it expects action by the FDA on its multiple regulatory submissions for its Eylea HD product by Q4 of 2025, which is sooner than anticipated, according to BMO Capital Markets. 

TJX Cos (TJX) closed up more than +2% after reporting Q3 comparable sales rose +4%, stronger than the consensus of +3.09%, and boosting its 2026 comparable sales forecast to +3% from a previous estimate of +2% to 3%, better than the consensus of +2.87%. 

Dayforce (DAY) closed up more than +2% on reports that the company is in advanced talks with Thoma Bravo to be acquired for $70 a share.

Jack Henry & Associates (JKHY) closed up more than +2% after reporting Q4 processing revenue of $264.1 million, above the consensus of $255.3 million.

McCormick & Co. (MKC) closed up more than +1% after JPMorgan Chase double upgraded the stock to overweight from underweight with a price target of $83.

Earnings Reports(8/21/2025)

Intuit Inc (INTU), Louisiana-Pacific Corp (LPX), Ross Stores Inc (ROST), Walmart Inc (WMT), Workday Inc (WDAY), Zoom Communications Inc (ZM).