Stocks Pressured by Rising Bond Yields

The S&P 500 Index ($SPX) (SPY) today is down by -0.15%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.25%.  September E-mini S&P futures (ESU25) are down -0.18%, and September E-mini Nasdaq futures (NQU25) are down -0.35%. 

Stock indexes are moving lower today, giving back some of last Friday’s sharp rally.  Concerns about tariffs and their impact on inflation and corporate profits are weighing on stocks.  Also, higher bond yields are negative for stocks, with the 10-year T-note yield up +3 bp to 4.28%. 

Despite last Friday’s dovish comments from Fed Chair Powell, who said the downside risks to the labor market may “warrant adjusting our policy stance,” there are concerns about how much the Fed can lower interest rates, with fears that inflation will rise from still-elevated levels as President Trump’s tariffs move through the economy.  

Today’s US economic news was bearish for stocks after the July Chicago Fed national activity index fell -0.37 to -0.19, weaker than expectations of -0.11.

On the geopolitical front, diplomatic efforts to end the war in Ukraine remain elusive, as the US tries to broker a peace deal between the two countries.  On Sunday, Russian Foreign Minister Lavrov said there was no meeting planned between the leaders of Russia and Ukraine and that there “needs to be an agenda first” for a meeting to take place.  “This agenda is not ready at all.” 

Regarding tariffs, President Trump last week 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 last Monday and did not exclude goods already in transit.  

In other recent tariff news, Mr. Trump on August 13 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.  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 any new tariff news or developments on ending the Ukraine-Russian war.  Later today, July new home sales are expected to climb +0.5% m/m to 630,000.  On Tuesday, July capital new orders nondefense ex-aircraft and parts, a proxy for capital spending, are expected to climb +0.2% m/m.  Also, the June S&P CoreLogic composite-20 home price index is expected to ease to +2.20% y/y from +2.79% y/y in May.  Finally, on Tuesday, the Conference Board’s Aug consumer confidence index is expected to fall -0.8 to 96.4.  After Wednesday’s close, Nvidia will release quarterly earnings results. On Thursday, Q2 GDP is expected to be revised upward by +0.1 to 3.1% (q/q annualized).  Also, weekly initial unemployment claims are expected to fall by -5,000 to 230,000.  On Friday, July personal spending is expected to climb +0.3% m/m and July personal income is expected to rise +0.4% m/m.   Also, the July core PCE price index, the Fed’s preferred inflation gauge, is expected to climb +0.2% m/m and +2.9% y/y.  In addition, the Aug MNI Chicago PMI is expected to fall -0.6 to 46.5.  Finally, the University of Michigan’s final-Aug US consumer sentiment index is expected to be unrevised at 58.6.

Federal funds futures prices are discounting the chances for a -25 bp rate cut at 82% at the next FOMC meeting on September 16-17.  The markets are discounting the chances at 50% 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 Q2 earnings season winding down, over 94% of S&P 500 firms having reported Q2 earnings, about 82% of companies exceeded profit estimates. 

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down -0.47%.  China’s Shanghai Composite rallied to a new 10-year high and closed up +1.51%.  Japan’s Nikkei Stock 225 closed up +0.41%.

Interest Rates

September 10-year T-notes (ZNU5) today are down -6 ticks, and the 10-year T-note yield is up +3.1 bp to 4.285%.  Sep T-notes are under pressure today, giving back some of last Friday’s rally.  Concerns that President Trump’s tariffs will push inflation up from still elevated levels are limiting the upside in T-notes.  Also, rising inflation expectations are undercutting T-note prices after the 10-year breakeven inflation rate rose to a 3.5-week high today of 2.435%.  In addition, supply pressures are negative for T-notes as the Treasury will auction $211 billion of T-notes and floating-rate notes this week, beginning with Tuesday’s $69 billion auction of 2-year T-notes. 

Losses in T-notes are limited due to some positive carryover from last Friday, when Fed Chair Powell said downside risks to employment are rising and the shifting balance of risks may warrant adjusting monetary policy.  

European government bond yields today are moving higher.  The 10-year German bund yield is up +4.9 bp to 2.771%. 10-year UK gilts are not trading today, with markets closed in the UK for the summer bank holiday.

The German Aug IFO business climate survey rose +0.4 to a 16-month high of 89.0, stronger than expectations of +0.2 to 88.8.

Swaps are discounting the chances at 1% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

Furniture stocks are falling today after President Trump said that furniture coming from other countries into the US will be tariffed at a rate yet to be determined.  RH (RH) and Wayfair (W) are down more than -8%.  Also, Williams-Sonoma (WSM) is down more than -3%. 

Cryptocurrency-exposed stocks are retreating today with the price of Bitcoin (^BTCUSD) down more than -4% at a 6-week low.  Strategy (MSTR), Coinbase Global (COIN), MARA Holdings (MARA), Galaxy Digital (GLXY), and Riot Platforms (RIOT) are down more than -3%.

Keurig Dr Pepper (KDP) is down more than -8% to lead losers in the S&P 500 and Nasdaq 100 after it agreed to buy JDE Peet NV for $18.4 billion. 

Eversource Energy (ES) is down more than -5% after the Trump administration blocked construction of Orsted’s almost-finished Revolution offshore wind farm, of which Eversource has liabilities related to the sale to Global Infrastructure Partners.

Axogen (AXGN) is down more than -15% after the FDA extended its review for the company’s Biologics License Application for Avance Nerve Graft by three months till December 5, 2025. 

Symbotic (SYM) is down more than -5% after DA Davidson & Co. downgraded the stock to neutral from buy. 

American Eagle Outfitters (AEO) is down more than -3% after Bank of America Global Research downgraded the stock to underperform from neutral with a price target of $10.

Dyne Therapeutics (DYN) is up more than +7% after Raymond James upgraded the stock to strong buy from outperform with a price target of $35. 

Fabrinet (FN) is up more than +4% after JPMorgan Chase upgraded the stock to overweight from neutral.

PDD Holdings (PDD) is up more than +3% to lead gainers in the Nasdaq 100 after reporting Q2 revenue of 103.98 billion yuan, better than the consensus of 103.93 billion yuan. 

MarketAxess Holdings (MKTX) is up more than +1% after Argus Research upgraded the stock to buy from hold with a price target of $212.

Venture Global (VG) is up more than +3% after UBA upgraded the stock to buy from neutral with a price target of $18.

Earnings Reports(8/25/2025)

HEICO Corp (HEI), Napco Security Technologies Inc (NSSC), PDD Holdings Inc (PDD), Semtech Corp (SMTC).