The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -0.13%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.27%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.08%.  September E-mini S&P futures (ESU25) fell -0.11%, and September E-mini Nasdaq futures (NQU25) fell -0.04%. 

Stock indexes gave up an early advance on Tuesday and posted modest losses on long liquidation and position squaring ahead of Wednesday’s FOMC meeting results.  The markets are expecting that the Fed will cut interest rates by 25 bp at Wednesday’s conclusion of the 2-day FOMC meeting.  However, the markets will focus on the Fed’s new quarterly interest rate projections, or dot plot, to see if policymakers’ expectations match swaps market projections for a total of 70 bp in rate cuts by year’s end.   

The S&P 500 and Nasdaq 100 initially posted new record highs on Tuesday.   Signs that US consumer spending is holding up are a positive factor for the economy and equity markets after Aug retail sales rose more than expected.  Also, strength in technology stocks was supportive of the broader market, as semiconductor stocks rose, and energy producers rallied after crude prices climbed to a 1.5-week high.  However, health care stocks retreated after Wells Fargo downgraded the sector to unfavorable from neutral.  

US Aug retail sales rose +0.6% m/m, stronger than expectations of +0.2% m/m.  Also, Aug retail sales ex-autos rose +0.7% m/m, stronger than expectations of +0.4% m/m. 

The US Aug import price index ex-petroleum rose +0.2% m/m, slightly stronger than expectations of +0.1% m/m.

US Aug manufacturing production unexpectedly rose +0.2% m/m versus expectations for a -0.2% m/m decline.

The US Sep NAHB housing market index was unchanged at a 2.75-year low of 32, weaker than expectations of an increase to 33.

Most major US benchmark indexes, including the S&P 500, the Dow Jones Industrials, and the Nasdaq 100, continue to post record highs, driven by expectations of Fed interest rate cuts.  Weak labor market news and relatively contained inflation reports bolstered expectations for at least a -25 bp rate cut by the Fed at the Tue/Wed FOMC meeting and a total of -70 bp of rate cuts by year’s end. 

The markets this week will continue to focus on any fresh trade or tariff news.  On Wednesday, the FOMC is expected to cut the federal funds rate target by -25 bp to 4.00%-4.25% from 4.25%-4.50%, the Fed will release quarterly projections, and Fed Chair Powell will deliver post-FOMC meeting comments.  On Thursday, weekly initial unemployment claims are expected to fall by -23,000 to 240,000.

The markets are pricing in a 100% chance of a -25 bp rate cut and a 5% chance of a -50 bp rate cut at the conclusion of the Tue/Wed FOMC meeting.  After the fully expected -25 bp rate cut at this week’s meeting, the markets are discounting an 84% chance of a second -25 bp rate cut at the next FOMC meeting on Oct 28-29.  The markets are pricing in an overall -68 bp rate cut in the federal funds rate by year-end to 3.65% from the current 4.33% rate.

Overseas stock markets on Tuesday settled mixed.  The Euro Stoxx 50 closed down -1.25%.  China’s Shanghai Composite closed up +0.04%.  Japan’s Nikkei Stock 225 rallied to a new record high and closed up +0.30%.

Interest Rates

December 10-year T-notes (ZNZ5) on Tuesday closed up +2.5 ticks.  The 10-year T-note yield fell by -1.2 bp to 4.026%.  Dec T-notes recovered from early losses and posted modest gains.  Short covering pushed T-note higher today after stocks gave up early gains and turned lower.  T-notes climbed to their highs Tuesday afternoon on strong demand for the Treasury’s $13 billion auction of 20-year T-bonds that had a bid-to-cover ratio of 2.74, well above the 10-auction average of 2.59.  T-notes also have support on expectations that the Fed will cut interest rates by at least -25 bp at the conclusion of Wednesday’s 2-day FOMC meeting.

T-notes initially moved lower on Tuesday after the US retail sales and manufacturing production reports rose more than expected. 

Concerns about Fed independence are negatively impacting T-note prices due to President Trump’s attempt to fire Fed Governor Cook and Stephen Miran’s intention to hold a Fed Governor position while remaining technically in his White House role on the Council of Economic Advisors.

European government bond yields moved higher on Tuesday.  The 10-year German bund yield rose +0.1 bp to 2.693%. The 10-year UK gilt yield rose +0.6 bp to 4.639%.

Eurozone July industrial production rose +0.3% m/m, weaker than expectations of +0.4% m/m, but June was revised upward to -0.6% m/m from -1.3% m/m.

Eurozone Q2 labor costs increased to +3.6% y/y from +3.4% y/y in Q1. 

The German Sep ZEW survey expectations of economic growth unexpectedly rose +2.6 to 37.3, stronger than expectations of a decline to 25.0.

ECB Governing Council member Simkus said, “It is clear that inflation in the Eurozone is currently at the target level, and if we look at the medium term, it is still hovering around 2% or very close to it.  Given these trends, the sequence of interest rate cuts by the ECB is very close to the end.”

Swaps are discounting a 2% chance for a -25 bp rate cut by the ECB at its next policy meeting on October 30.

US Stock Movers

Health care stocks retreated Tuesday after Wells Fargo downgraded the sector to unfavorable from neutral.  As a result, UnitedHealth Group (UNH) closed down more than -2% to lead losers in the Dow Jones Industrials.  Also, Centene (CNC) and Welltower (WELL) closed down more than -2%.  In addition, Universal Health Services (UHS), Cardinal Health (CAH), and Humana (HUM) closed down more than -1%.

Dave & Buster’s Entertainment (PLAY) closed down more than -17% after reporting Q2 adjusted EPS of 40 cents, well below the consensus of 89 cents. 

Rocket Lab (RKLB) closed down more than -12% after announcing it plans to offer $750 million shares of common stock in an at-the-market offering. 

Warner Bros Discovery (WBD) closed down more than -6% to lead losers in the S&P 500 and Nasdaq 100 after TD Cowen downgraded the stock to hold from buy. 

Everest Group Ltd (EG) closed down more than -2% after Wolfe Research initiated coverage on the stock with a recommendation of underperform and a price target of $287.

Emerson Electric (EMR) closed down more than -2% after management said at a JPMorgan conference that the book-to-bill that the company expected in Q4 did not materialize, and growth will come in at the low end of previous guidance.

The New York Times (NYT) closed down more than -1% after President Trump said he is bringing a $15 billion defamation and libel suit against the company.

Strength in chip makers on Tuesday led technology stocks higher. ON Semiconductor (ON) closed up more than +3% to lead gainers in the Nasdaq 100.  Also, Marvell Technology (MRVL), Intel (INTC), and Microchip Technology (MCHP) closed up more than +2%.  In addition, Applied Materials (AMAT), ASML Holding NV (ASML), Lam Research (LRCX), and Qualcomm (QCOM) closed up more than +1%. 

Energy producers and energy service providers moved higher Tuesday, with the price of WTI crude up more than +1% at a 1.5-week high.  APA Corp (APA) closed up more than +6% to lead gainers in the S&P 500, and Occidental Petroleum (OXY) closed up more than +5%.  Also, Devon Energy (DVN) and Valero Energy (VLO) closed up more than +3%, and Diamondback Energy (FANG), Haliburton (HAL), ConocoPhillips (COP), Baker Hughes (BKR), and Exxon Mobil (XOM) closed up more than +2%.  In addition, Marathon Petroleum (MPC), Phillips 66 (PSX), and Schlumberger (SLB) closed up more than +1%.  Finally, Chevron (CVX) closed up more than +1% to lead gainers in the Dow Jones Industrials.

Webtoon Entertainment (WBTN) closed up more than +38% after Walt Disney said it plans to acquire a 2% equity interest in the company. 

Bloom Energy (BE) closed up more than +8% after Morgan Stanley raised its price target on the stock to $85 from $44. 

Ferguson Enterprises (FERG) closed up more than +7% after reporting Q4 revenue of $8.50 billion, stronger than the consensus of $8.41 billion. 

Steel Dynamics (STLD) closed up more than +6% after forecasting Q3 adjusted EPS of $2.60-$2.64, better than the consensus of $2.58.

Hershey (HSY) closed up more than +4% after Goldman Sachs double upgraded the stock to buy from sell with a price target of $222. 

Oracle (ORCL) closed up more than +1% after CBS News reported that the company is among a consortium of firms that would enable TikTok to continue operations in the US if a framework deal is finalized. 

Earnings Reports(9/17/2025)

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