Market Index
- The Dow Jones Industrial Average climbed 0.20% to 44,459.65, recovering from its initial struggles.
- Similarly, the S&P 500 rose 0.14% to 6,268.56, nearing its previous highs.
- The Nasdaq also saw gains, increasing by 0.27% to 2,640.33.
- Furthermore, the Russell 2000 showed strong performance, advancing 0.67% to 2,249.73.
- While the VIX index, a measure of market volatility, increased by 4.88% to 17.20, market fear isn’t extreme yet.
Trade Policy Shifts
The initial market jitters stemmed from President Donald Trump’s weekend threat of 30% tariffs on European and Mexican goods. Europe responded with threats of retaliatory measures. However, Trump later softened his stance. He expressed an openness to dialogue with Europe, which helped stabilize the market. Still, Trump also threatened a 100% tariff on nations purchasing Russian exports. Russia, in turn, emphasized the need for a peace agreement with Ukraine by September.
Expert Outlook on Tariffs and Economic Impact
Many experts, including those from UBS, view these tariff discussions as a “negotiation tactic.” They anticipate that US tariffs will likely settle around 15%. This perspective suggests continued growth for the S&P 500 over the next 12 months. UBS has already raised its target price for the index. Investors generally predict tariffs will average 17%, aligning with Trump’s recent statements. This could push the core inflation rate up by approximately 0.28%, potentially reaching 3%.
Economic Indicators and Federal Reserve Actions
Concerns about impending tariffs are affecting trade. For example, June’s import data indicates a surge in “panic buying” by businesses. Meanwhile, bond yields remained relatively stable. The 10-year Treasury yield rose slightly to 4.43%, and the 30-year yield edged up to 4.96%. The market expects the Federal Reserve to hold interest rates steady in July. However, there’s a 59.3% probability of a rate cut to 4.00-4.25% in September. Two rate cuts are anticipated by December, potentially bringing rates to 3.7-4.0%.
Political Pressure on the Fed
Political pressure on the Federal Reserve continues to mount. Trump advocates for Federal Reserve Chair Jerome Powell’s removal. Even the chairman of the National Economic Council suggested Powell’s dismissal is possible if justified. These calls aim to accelerate interest rate reductions, potentially by September.
CPI Data and Market Sentiment
Tomorrow’s CPI inflation data is a key focus. Headline CPI is expected to rise from 2.4% to 2.7%. Core CPI is projected to increase from 2.8% to 3.0%. Nevertheless, many investors believe the August 1st tariff decisions will be more impactful than the CPI figures. In fact, 42% of investors anticipate a “risk-on” environment, indicating increased stock purchases regardless of CPI results. Only 29% foresee a market downturn.
Corporate Earnings Season Begins
The second-quarter earnings season officially kicks off tomorrow with bank earnings. Expectations are modest for overall S&P 500 earnings growth, estimated at 2.5% to 2.8%. In contrast, Big Tech earnings are projected to surge by around 17%. The “Greed Index” has climbed to 77, signaling “extreme greed” in the market.
Market Breadth and Sector Performance
Today, 3,408 stocks advanced, while 2,904 declined, indicating a broadly positive market. However, certain sectors experienced weakness. Tariff-sensitive stocks and semiconductor companies, which had seen significant gains, generally declined.
Sector-Specific Performance Highlights
Bank stocks rose in anticipation of strong earnings reports. Pharmaceutical companies, including Eli Lilly, also performed well. Retail giants like Walmart and Costco saw gains. Conversely, Apple, Microsoft, and NVIDIA experienced slight pullbacks. Tesla, Google, Meta, and Amazon closed higher. Software stocks like Palantir notably advanced.
In the automotive sector, Chinese EV makers like Nio and Xpeng climbed. Tesla gained 1%, and Ford rose 0.85%, likely due to optimism about trade negotiations. Lucid and Rivian, however, declined.
Tesla’s Performance and Strategic Moves
Tesla closed at $316.90, up 1%, after dipping to $312 intraday. It successfully pushed past its 50-day moving average of $313.58. Trading volume was moderate at 740 million shares, and its RSI recovered to 50, indicating neutrality.
Several factors influenced Tesla’s day:
- XAI Investment: Elon Musk announced a shareholder vote in November on Tesla investing in XAI. This comes as XAI’s valuation has soared significantly. While not a merger, the investment raises questions about its impact on Tesla’s cash flow, especially since SpaceX has already committed $2 billion to XAI.
- Robotaxi Expansion: Tesla is expanding its Robotaxi service areas, notably in Austin, Texas.
- “Most Epic Demo”: Musk teased a “most epic demo” by year-end, hinting at potential new products like a low-cost model or advancements in autonomous driving.
- Grok Integration: Tesla is rolling out software updates allowing for conversations via Grok, its AI chatbot.
- Short Interest: Despite high short interest (59.42%), Tesla managed to close higher.
Semiconductor and AI Sector Updates
The semiconductor sector broadly underperformed today. Broadcom saw gains, while NVIDIA declined. The Philadelphia Semiconductor Index dropped 0.95%, and SMH ETF fell 0.75%. This dip is likely a cooling-off period after recent surges.
In the AI and tech sector, quantum computing stocks like QBTS, ArQit Quantum, Rigetti Computing, and IonQ performed exceptionally well. Roblox, Palantir, and Netflix also had strong days. Cloudflare and NVIDIA saw price target downgrades due to previous overvaluation. Apple was impacted by tariff concerns.
Key Tech Giants and Market Leaders
NVIDIA remains the world’s most valuable company with a $4 trillion market capitalization. Microsoft and Apple follow closely. Concerns persist about NVIDIA CEO Jensen Huang’s planned visit to China.
Amazon, Shopify, Google, and Meta all posted gains. Tesla maintained its trillion-dollar valuation. Meta Platforms announced plans for a massive gigawatt-scale data center, an investment of $100 billion. This aggressive expansion, including talent acquisition, contributed to Meta’s strong performance.
Other Market Movements
Procter & Gamble (P&G) shares declined after a price target cut, possibly due to increased competition from Amazon. Bitcoin experienced a dramatic surge, briefly touching $123,000 before settling around $119,500. Other notable movers included Domino’s Pizza and McDonald’s, which saw gains. Retailers like Macy’s, Nike, and Lululemon experienced significant declines. In healthcare, Eli Lilly performed well. Fintech stocks like SoFi and MicroStrategy also rose, with Circle up 9%. Airline stocks and eVTOL companies such as Joby Aviation and Archer Aviation also climbed.
Disclaimer: This content is for informational purposes only and does not constitute financial advice. Consult a qualified financial advisor before making investment decisions.