Escalating Trade Disputes Pose Threats to Stock Market Stability
Today's market is facing a rollercoaster ride, with the S&P 500 Index ($SPX) taking a dip of -0.37%, the Dow Jones Industrials Index ($DOWI) creeping up +0.07%, and the Nasdaq 100 Index ($IUXX) plummeting -0.47%. Meanwhile, June E-mini S&P futures (ESM25) are down -0.36%, and June E-mini Nasdaq futures (NQM25) follow suit, dropping -0.46%.
The market's mood is gloomy as US trade uncertainty weighs heavily, with President Trump indicating that he has no immediate plans to speak with Chinese President Xi Jinping. However, there's a glimmer of hope after US Apr ISM services index surprisingly increased, signaling strength in the economy and rallying the indexes from their lowest points today.
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Energy producers are feeling the heat, with the price of WTI crude plunging more than -2% at a 3-1/2 week low. OPEC+'s decision to raise crude production by 411,000 bpd in June threatens to aggravate a global oil glut, forcing energy giants like Apa Corp (APA) and Occidental Petroleum (OXY) to fall more than -3%. Other companies like ConocoPhillips (COP), Diamondback Energy (FANG), Exxon Mobil (XOM), and Haliburton (HAL) are also facing declines of over -2%.
The US Apr ISM services index's unexpected rise of +0.8 to 51.6 achieved a strong score of 51.6, surpassing expectations of a decline to 50.2. The Apr ISM services prices paid sub-index experienced an impressive climb of +4.2 to a 2-1/4 year high of 65.1, beating expectations of 61.4.
The weeks ahead are set to be eventful, with the market focused on tariffs and any changes to US trade policy. This Tuesday, the Mar trade deficit is expected to widen to -$136.7 billion, and on Wednesday, the FOMC will hold its meeting, with Chair Powell's post-meeting comments closely scrutinized for insights into the future of Fed policy. Thursday brings weekly initial unemployment claims, Q1 nonfarm productivity (expected 0.7%), and Q1 unit labor costs (expected +5.2%).
The markets are giving a slim chance of -25 bp rate cut after the FOMC meeting on Wednesday, with the odds currently at 2%.
Q1 earnings reporting season is in full throttle. According to Bloomberg Intelligence data, analysts expect Q1 year-over-year earnings growth of +6.7% for S&P 500 stocks, a significant drop from the earlier forecast of +11.1% back in early November. As of now, 78% of the S&P 500 companies that have reported earnings have surpassed estimates. Full-year 2025 corporate profits for the S&P 500 are predicted to increase by +9.4%, but this figure is lower compared to the initial January forecast of +12.5%.
Overseas markets are witnessing a downturn, with the Euro Stoxx 50 slipping -0.05%, while China's Shanghai Composite remains closed for the Labor Day holiday. Japan's Nikkei Stock 225 is also closed for the Children's Day holiday.
Interest rates are causing waves in the market, with June 10-year T-notes (ZNM25) facing a dip of -5 ticks. Consequently, the 10-year T-note yield has surged +2.7 bp to 4.336%. T-note prices tumbled today after the Apr ISM services index rose more than expected, and the Apr ISM service prices-paid sub-index jumped to a 2-1/4 year high, fueling inflation concerns. Nevertheless, T-notes enjoy some level of protection from safe-haven demand due to the slump in stocks and carryover support from strength in 10-year German bunds.
European government bond yields are slipping today. The 10-year German bund yield has descended -0.7 bp to 2.526%, while the 10-year UK gilt yield remains closed for the May Day holiday.
The Eurozone May Sentix investor confidence index saw a substantial leap of +11.4 to -8.1, outpacing expectations of -11.5.
Swaps are predicting a -25 bp rate cut by the ECB with a 97% likelihood at the June 5 policy meeting.
Energy stocks and energy service providers are under duress, as the price of WTI crude plummets more than -2%. As a result, stocks like Apa Corp (APA) and Occidental Petroleum (OXY) are tumbling more than -3%. Not only that, but ConocoPhillips (COP), Diamondback Energy (FANG), Exxon Mobil (XOM), and Haliburton (HAL) are taking a hit of over -2%, and Baker Hughes (BKR), Chevron (CVX), Schlumberger (SLB), and Devon Energy (DVN) are dipping more than -1%.
Media stocks are plummeting after President Trump threatened to impose a 100% tariff on films produced overseas, with Netflix (NFLX) and Paramount Global (PARA) suffering losses of over -1%, while Warner Bros Discovery (WBD) is down -0.70%, and Disney (DIS) is slipping -0.28%.
Tyson Foods (TSN) is leading losses in the S&P 500 after announcing Q2 sales of $13.07 billion, falling short of the consensus of $13.12 billion. ON Semiconductor (ON) is underperforming in the Nasdaq 100 despite reporting better-than-expected Q1 revenue and forecasting Q2 adjusted gross margins of 36.5% to 38.5%, which is below the consensus of 39%.
Zimmer Biomet Holdings (ZBH) is suffering after adjusting its full-year adjusted diluted EPS estimate from $8.15-$8.35 to $7.90-$8.10, and Apple (AAPL) is losing ground due to the company pricing a 4-part debt offering today. Berkshire Hathaway (BRK.B) is experiencing a decline of over -4% following CEO Buffet's announcement that he would step down at the end of the year.
However, there's reason to celebrate too, with EQT Corp (EQT) soaring more than +3% after UBA upgraded the stock to "buy" from "neutral" with a price target of $64. Howard Hughes Holdings (HHH) is rising by over +4% after accepting an investment of $900 million from Pershing Square Capital to acquire 9 million shares of the company. Freshpet (FRPT) is climbing more than +3% after reporting Q1 net sales of $263.2 million, surpassing the consensus of $259.9 million. Axsome Therapeutics (AXSM) is surging more than +5% after announcing Q1 cash and cash equivalents of $300.9 million, beating expectations of $255.5 million. Wendy's (WEN) is up more than +2% after JPMorgan Chase upgraded the stock to "overweight" from "neutral" with a price target of $15.
Tomorrow's earnings reports feature Clorox Co/The (CLX), Coterra Energy Inc (CTRA), Cummins Inc (CMI), Diamondback Energy Inc (FANG), Ford Motor Co (F), Henry Schein Inc (HSIC), Loews Corp (L), ON Semiconductor Corp (ON), Palantir Technologies Inc (PLTR), Realty Income Corp (O), Tyson Foods Inc (TSN), Vertex Pharmaceuticals Inc (VRTX), Williams Cos Inc/The (WMB), and Zimmer Biomet Holdings Inc (ZBH).
- The unexpected rise of the US Apr ISM services index, a key indicator of the economy's strength, could be a sign of technology companies rallying, as they often benefit from a strong services sector.
- Amid the general-news backdrop of market uncertainty, a tech start-up named Mode Mobile has entered the spotlight, offering shares at an affordable price, potentially attracting investors interested in the technology sector.
