Stocks Settle Lower as Bond Yields Rise

The S&P 500 Index ($SPX) (SPY) on Monday closed down by -0.43%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down by -0.77%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down by -0.31%.  September E-mini S&P futures (ESU25) fell -0.37%, and September E-mini Nasdaq futures (NQU25) fell -0.26%. 

Stock indexes settled lower on Monday and gave back some of last Friday’s sharp rally.  Concerns about tariffs and their impact on inflation and corporate profits weighed on stocks.  Also, higher bond yields were negative for stocks, as the 10-year T-note yield rose +3 bp to 4.28%.  Stock indexes recovered from their worst levels on strength in chip makers.

The markets were optimistic about last Friday’s dovish comments from Fed Chair Powell, who said the downside risks to the labor market may “warrant adjusting our policy stance.”  However, 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.  

Monday’s US economic news was mixed for stocks.  The July Chicago Fed national activity index fell -0.37 to -0.19, weaker than expectations of -0.11.  However, July new home sales unexpectedly fell -0.6% m/m to 652,000 from an upwardly revised 656,000 in June (initially reported 627,000), still stronger than expectations of 630,000.

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 fresh tariff news or developments on ending the Ukraine-Russian war.  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 its quarterly earnings and guidance.  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 83% 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 on Monday settled mixed.  The Euro Stoxx 50 closed down -0.81%.  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) on Monday closed down -5.5 ticks, and the 10-year T-note yield rose +2.5 bp to 4.279%. Sep T-notes were under pressure on Monday as they gave 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 expectations rate rose to a 3.5-week high on Monday 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 were limited due to weakness in stocks, which boosted safe-haven demand for T-notes.  Also, T-notes had 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 on Monday moved higher.  The 10-year German bund yield rose +3.5 bp to 2.757%. 10-year UK gilts did not trade on Monday as markets were 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 fell Monday 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) closed down more than -5%.  Also, Williams-Sonoma (WSM) closed down more than -2%. 

Cryptocurrency-exposed stocks slid Monday after the price of Bitcoin (^BTCUSD) fell more than -4% to a 6-week low.  Strategy (MSTR), Coinbase Global (COIN), MARA Holdings (MARA), and Galaxy Digital (GLXY) closed down more than -2%.

Makers of Covid-19 vaccines retreated Monday after the Daily Beast reported that the US government will move to pull MRNA vaccines from the market “within months.”  Moderna (MRNA) closed down more than -6%, BioNTech SE (BNTX) closed down more than -5%, Novavax (NVAX) closed down more than -4%, and Pfizer (PFE) closed down more than -2%.

The strength in chip stocks on Monday limited losses in the broader market.  Nvidia (NVDA) closed up more than +1% to lead gainers in the Dow Jones Industrials.  Also, Lam Research (LRCX) and KLA Corp (KLAC) closed up more than +1%.  In addition, Analog Devices (ADI) closed up +0.91%, and NXP Semiconductors NV (NXPI) closed up +0.78%.

Casino stocks with exposure to Macau moved higher on Monday after data showed gaming revenue in Macau in the first 17 days of August was up by +11% from the same period last year.  Wynn Resorts Ltd (WYNN) closed up more than +3% and Las Vegas Sands (LVS) closed up more than +2%.

Keurig Dr Pepper (KDP) closed down more than -11% to lead losers in the S&P 500 and Nasdaq 100 after it agreed to buy JDE Peet NV for $18.4 billion. 

CSX Corp (CSX) closed down more than -5% and Union Pacific (UNP) closed down more than -2% after Berkshire Hathaway said it is not looking to buy a rail company.

Eversource Energy (ES) closed down more than -4% 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) closed down more than -9% after the FDA extended its review for the company’s Biologics License Application for Avance Nerve Graft by three months till December 5, 2025. 

American Eagle Outfitters (AEO) closed down more than -2% after Bank of America Global Research downgraded the stock to underperform from neutral with a price target of $10.

Fabrinet (FN) closed up more than +6% after JPMorgan Chase upgraded the stock to overweight from neutral.

Dyne Therapeutics (DYN) closed up more than +3% after Raymond James upgraded the stock to strong buy from outperform with a price target of $35. 

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

Earnings Reports(8/26/2025)

American Woodmark Corp (AMWD), Box Inc (BOX), Citi Trends Inc (CTRN), Electromed Inc (ELMD), Golden Matrix Group Inc (GMGI), MongoDB Inc (MDB), nCino Inc (NCNO), Okta Inc (OKTA), Ooma Inc (OOMA), PACS Group Inc (PACS), PVH Corp (PVH).