Stocks Finish Higher on Strength in Chip Makers and Lower Bond Yields

The S&P 500 Index ($SPX) (SPY) on Tuesday closed up by +0.41%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.30%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.43%.  September E-mini S&P futures (ESU25) rose +0.43%, and September E-mini Nasdaq futures (NQU25) rose +0.46%. 

Stock indexes settled higher on Tuesday on some positive US economic news.  The US core capital goods and consumer confidence reports were stronger than expected. Also, the strength in semiconductor makers was supportive of the overall market.  In addition, China is sending Vice Commerce Minister Li Chenggang to the US to meet with US trade officials and negotiators, a move that signals trade talks with China are progressing.

Stock indexes added to their gains Tuesday afternoon when bond yields declined on strong demand for the Treasury's $69 billion auction of 2-year T-notes.  The 10-year T-note yield fell -2 bp to 4.25%. 

However, fresh concerns over the Fed's independence limited gains in stocks and weighed on the dollar after President Trump moved to fire Fed Governor Lisa Cook, citing "sufficient cause" based on the administration’s allegations she made false statements on one or more mortgage loans.  Ms. Cook said she will not resign, and her lawyer pledged to take "whatever actions are needed to prevent" the president's "illegal action." 

US July capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +1.1% m/m, stronger than expectations of +0.2% m/m.

The US June S&P Core Logic composite-20 home price index eased to +2.14% y/y from +2.81% y/y in May, the smallest increase in two years.

The Conference Board US Aug consumer confidence index fell -1.3 to 97.4, stronger than expectations of 96.5.

The US Aug Richmond Fed manufacturing survey rose +13 to a 5-month high of -7, stronger than expectations of -11.

Regarding tariffs, President Trump late Monday threatened to impose new tariffs and export restrictions on advanced technology and semiconductors in retaliation against other nations' digital services taxes that hit American companies.  Last week, Mr. 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 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.

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." 

The markets this week will focus on any fresh tariff news or developments on ending the Ukraine-Russian war.  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 87% at the next FOMC meeting on September 16-17.  The markets are discounting the chances at 52% 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 closed lower on Tuesday.  The Euro Stoxx 50 fell to a 1.5-week low and closed down -1.11%.  China's Shanghai Composite fell from a new 10-year high and closed down -0.39%.  Japan's Nikkei Stock 225 dropped to a 2-week low and closed down -0.97%.

Interest Rates

September 10-year T-notes (ZNU5) on Tuesday closed up +7.5 ticks, and the 10-year T-note yield fell -2.1 bp to 4.254%. 

T-notes recovered from early losses on Tuesday and moved higher after strong demand for the Treasury's $69 billion auction of 2-year T-notes sparked short covering in T-note futures.  The auction had a bid-to-cover ratio of 2.69, better than the 10-auction average of 2.62.  T-notes also garnered support when Fed Governor Cook said she has no plans to resign and that "no cause exists" for President Trump to fire her. 

T-notes initially moved lower on Tuesday after President Trump said he will move to fire Fed Governor Cook, exacerbating investor concerns about the Fed's independence and fanning inflation fears if politics forces interest rates below the neutral rate.  Also, rising inflation expectations undercut T-note prices after the 10-year breakeven inflation expectations rate rose to a 3.5-week high on Tuesday of 2.438%.  In addition, today's stronger-than-expected US core capital goods and consumer confidence reports were bearish for T-notes.

European government bond yields on Tuesday were mixed.  The 10-year German bund yield fell -3.4 bp to 2.723%. 10-year UK gilt yield rose to a 3-month high of 4.765% and finished up +4.7 bp to 4.740%.

The French Aug consumer confidence indicator unexpectedly fell -1 to a 1.75-year low of 87, weaker than expectations of 89.

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

Strength in semiconductor makers on Tuesday supported gains in the broader market.  Marvell Technology (MRVL) closed up more than +2%.  Also, Nvidia (NVDA), Applied Materials (AMAT), Advanced Micro Devices (AMD), ARM Holdings Plc (ARM), Qualcomm (QCOM), Lam Research (LRCX), and Broadcom (AVGO) closed up more than +1%. 

Eli Lilly (LLY) closed up more than +5% to lead gainers in the S&P 500 after the company said a second trial of its experimental obesity pill showed patients lost weight and saw significant improvements in blood sugar levels.

Boeing (BA) closed up more than +3% to lead gainers in the Dow Jones Industrials after Reuters reported that Korea Air is expected to announce an order for about 100 Boeing airplanes. 

EchoStar (SATS) closed up more than +70% after AT&T announced an agreement to buy spectrum licenses from the company for about $23 billion. 

Semtech (SMTC) closed up more than +14% after reporting Q2 adjusted gross margin of 53.2%, above the consensus of 53.0%.

VF Corp (VFC) closed up more than +5% after Baird upgraded the stock to outperform from neutral with a price target of $20.

Kinetik Holdings (KNTK) closed up more than +2% after S&P Dow Jones Indices announced the company will replace Pacific Premier Bancorp in the S&P SmallCap 600 effective before the opening of trading on Tuesday, September 2. 

Keurig Dr Pepper (KDP) closed down more than 6% to lead the losers in the S&P 500 and Nasdaq 100 after HSBC downgraded the stock to "hold" from "buy."

Brown-Forman (BF.B) closed down more than -4% after the company said CFO Cunningham will retire on May 1, 2026.

Shoe Carnival (SCVL) closed down more than -4% after Seaport Global Securities downgraded the stock to neutral from buy.

Constellation Brands (STZ) closed down more than -3% after Bank of America downgraded the stock to underperform from neutral with a price target of $150.

Generac Holdings (GNRC) closed down more than -1% after Citigroup downgraded the stock to neutral from buy. 

Salesforce (CRM) closed down more than -1% to lead losers in the Dow Jones Industrials after Oppenheimer & Co. cut its price target on the stock to $315 from $370.

Earnings Reports(8/27/2025)

Agilent Technologies Inc (A), BILL Holdings Inc (BILL), Cooper Cos Inc/The (COO), Crowdstrike Holdings Inc (CRWD), Donaldson Co Inc (DCI), Five Below Inc (FIVE), HP Inc (HPQ), J M Smucker Co/The (SJM), NetApp Inc (NTAP), Nutanix Inc (NTNX), NVIDIA Corp (NVDA), Pure Storage Inc (PSTG), Snowflake Inc (SNOW), Veeva Systems Inc (VEEV), Williams-Sonoma Inc (WSM).