Stocks Settle Higher as Drug Makers and Chip Stocks Rally

The S&P 500 Index ($SPX) (SPY) on Tuesday closed up +0.41%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.28%.  December E-mini S&P futures (ESZ25) rose +0.39%, and December E-mini Nasdaq futures (NQZ25) rose +0.26%.

Stock indexes recovered from early losses on Tuesday and settled higher.  Short covering emerged in stocks on Tuesday as pharmaceutical makers rallied after Pfizer agreed to slash some of its drug prices by up to 85% in exchange for a three-year reprieve from pharmaceutical tariffs.  The deal may set a path for other pharmaceutical makers to follow, with Eli Lilly and other major drugmakers in active discussions with the Trump administration to expand patient access and make medicines more affordable.  Also, the strength in chip makers on Tuesday lent support to the broader market. 

Stocks initially moved lower on Tuesday due to the rising risk of a US government shutdown, which undermined market sentiment and prompted a risk-off in most asset markets.  Late Monday, Vice President Vance said President Trump’s last-ditch meeting with congressional leaders ended without a deal.  Most federal operations would pause if lawmakers failed to reach an agreement before 11:59 p.m. tonight.  Friday’s monthly payroll report would likely be delayed, as the Bureau of Labor Statistics would cease operations in the event of a shutdown.

Tuesday’s economic news was mixed for stocks.  On the positive side were signs of a stronger labor market, as evidenced by the August JOLTS job openings, which rose more than expected.  On the negative side, the Sep MNI Chicago PMI unexpectedly declined, and the Conference Board US Sep consumer confidence index fell more than expected to a 5-month low. Also, energy producers declined after the price of WTI crude oil fell more than -1% to a 1-week low.

The US Jul S&P composite-20 home price index showed home prices rose +1.82% y/y, above expectations of +1.55% y/y, but still the slowest pace of increase in two years.

The US Sep MNI Chicago PMI unexpectedly fell -0.9 to 40.6, weaker than expectations of an increase to 43.3.

The US Aug JOLTS job openings rose +19,000 to 7.227 million, showing a stronger labor market than expectations of 7.200 million.

The Conference Board US Sep consumer confidence index fell -3.6 to a 5-month low of 94.2, weaker than expectations of 96.0.

Comments from Fed Vice Chair Philip Jefferson on Tuesday hint at the possibility of stagflation and are negative for stocks, as he stated, “I see risks to employment as tilted to the downside and risks to inflation to the upside.”

Comments on Tuesday from Boston Fed President Susan Collins were slightly dovish when she said, “I continue to see a modestly restrictive policy stance as appropriate, as the Fed works to restore price stability while limiting the risks of further labor market weakening.” She added, “It may be appropriate to ease the policy rate a bit further this year, but the data will have to show that.”

Late Monday, President Trump ordered 10% tariffs on imports of softwood timber and lumber, as well as 25% tariffs on kitchen cabinets, vanities, and upholstered wood products. The tariffs are set to take effect on October 14, with some increases scheduled to take effect on January 1.

The US government will shut down on Wednesday if lawmakers fail to pass a spending bill or continuing resolution (CR) by this evening.  The White House warned last Wednesday that a shutdown would trigger widespread dismissals of employees in government programs that don’t align with President Trump’s priorities.

Rising corporate earnings expectations are a bullish backdrop for stocks.  According to Bloomberg Intelligence, more than 22% of companies in the S&P 500 provided guidance for their Q3 earnings results that are expected to beat analysts’ expectations, the highest in a year.  Also, S&P companies are expected to post +6.9% earnings growth in Q3, up from +6.7% as of the end of May. 

The markets are pricing in a 97% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29. 

Market focus this week will be on any new trade or tariff news. On Wednesday, the Sep ADP employment change is expected to increase by +51,000.  Also, the Sep ISM manufacturing index is expected to rise by +0.3 to 49.0. On Thursday, weekly initial unemployment claims are expected to increase by +7,000 to 225,000.  Also, Aug factory orders are expected to increase by +1.4% m/m. On Friday, Sep nonfarm payrolls are expected to increase by +51,000, and the Sep unemployment rate is expected to remain unchanged at 4.3%.  Also, Sep average hourly earnings are expected to increase by +0.3% m/m and +3.7% y/y.  Finally, the Sep ISM services index is expected to slip -0.2 to 51.8.

Overseas stock markets on Tuesday settled mixed.  The Euro Stoxx 50 closed up +0.42%.  China’s Shanghai Composite rose to a 1.5-week high and closed up +0.52%.  Japan’s Nikkei Stock 225 fell to a 1-week low and closed down -0.25%.

Interest Rates

December 10-year T-notes (ZNZ5) on Tuesday closed down -0.5 of a tick.  The 10-year T-note yield rose +0.7 bp to 4.146%.  T-notes gave up an early advance on Tuesday and settled little changed as a recovery in stocks from early losses reduced safe-haven demand for government debt securities.   Also, the Aug JOLTS job openings rose more than expected, a hawkish factor for Fed policy.

T-notes initially moved higher on Tuesday as weakness in stocks boosted some safe-haven demand for government securities.  Also, the Sep MNI Chicago PMI unexpectedly declined, and the Conference Board US Sep consumer confidence index fell more than expected to a 5-month low, supportive factors for T-notes.  In addition, month-end buying by bond dealers is supporting T-notes as the dealers purchase longer-term government debt securities to extend duration and balance their bond portfolios. 

European government bond yields on Tuesday were mixed.  The 10-year German bund yield recovered from a 1.5-week low of 2.693% and finished up +0.3 bp at 2.711%.  The 10-year UK gilt yield fell -0.1 bp to 4.699%.

German Aug retail sales unexpectedly fell -0.2% m/m, weaker than expectations of 0.6% m/m.

The German Sep unemployment change increased by +14,000, showing a weaker labor market than expectations of +8,000.

German Sep CPI (EU harmonized) rose +2.4% y/y, stronger than expectations of +2.2% y/y and the strongest pace of increase in 7 months.

Swaps are discounting a 1% chance for a -25 bp rate cut by the ECB at its next policy meeting on October 30.

US Stock Movers

Pharmaceutical stocks rallied Tuesday, led by a +6% jump in Pfizer (PFE) after it agreed to slash some of its drug prices by up to 85% in exchange for a three-year reprieve from pharmaceutical tariffs.  Also, Merck & Co. (MRK) closed up more than +6% to lead gainers in the Dow Jones Industrials, and Eli Lilly (LLY) closed up more than +5%.  In addition, AbbVie (ABBV), AstraZeneca Plc (AZN), and Amgen (AMGN) closed up more than +3%, and Bristol-Myers Squibb (BMY) closed up more than +2%.

Chipmakers are moving higher today to support the broader market. Nvidia (NVDA), Micron Technology (MU), Marvell Technology (MRVL), and Lam Research (LRCX) closed up more than +2%.  Also, KLA Corp (KLAC) and ARM Holdings Plc (ARM) closed up more than +1%.

Energy producers and energy service providers retreated Tuesday after the price of WTI crude oil fell by more than -1% to a 1-week low.  Baker Hughes (BKR) closed down more than -3% and Schlumberger (SLB) closed down more than -2%.  Also, Occidental Petroleum (OXY), Halliburton (HAL), ConocoPhillips (COP), Devon Energy (DVN), Marathon Petroleum (MPC), Phillips 66 (PSX), Exxon Mobil (XOM), and Valero Energy (VLO) closed down more than -1%. 

Semtech (SMTC) closed up more than +15% after Oppenheimer Securities upgraded the stock to outperform from market perform with a price target of $81. 

CoreWeave (CRWV) closed up more than +11% after signing a deal to supply Meta Platforms with as much as $14.2 billion of computing power.

Freeport McMoRan (FCX) closed up more than +5% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $42. 

Lamb Weston Holdings (LW) closed up more than +4% to lead gainers in the S&P 500 after reporting Q1 net sales of $1.66 billion, better than the consensus of $1.62 billion.

CRH Plc (CRH) closed up more than +4% after forecasting full-year adjusted Ebitda of $7.5 billion-$7.7 billion, the midpoint above the consensus of $7.57 billion. 

Monolithic Power Systems (MPWR) closed up more than +3% after KeyBanc Capital Markets raised its price target on the stock to $1,050 from $950. 

EchoStar (SATS) closed up more than +3% as Verizon Communications is said to be in discussions about purchasing some of the company’s wireless spectrum.

Firefly Aerospace (FLY) closed down more than -20% after saying that the first stage of its Alpha Flight 7 rocket experienced an event that resulted in “a loss of the stage.” 

Albemarle (ALB) closed down more than -6% to lead losers in the S&P 500 as lithium producers retreated on news that China approved the restart of the CATL mine that had been halted since last month.

NuScale Power Corp (SMR) closed down more than -5% after Bank of America Global Research downgraded the stock to underperform from neutral with a price target of $34.

Spotify Technology SA (SPOT) closed down more than -4% after announcing founder Daniel Ek will step down as CEO next year. 

TripAdvisor (TRIP) closed down more than -4% after Mizuho Securities initiated coverage on the stock with a recommendation of underperform with a price target of $14. 

Oklo (OKLO) closed down more than -4% after Bank of America Global Research downgraded the stock to neutral from buy. 

Earnings Reports(10/1/2025)

Acuity Inc (AYI), Cal-Maine Foods Inc (CALM), Conagra Brands Inc (CAG), Novagold Resources Inc (NG), Rezolve AI PLC (RZLV), RPM International Inc (RPM).