U.S. stock markets opened Tuesday on a positive note following a softer-than-expected Core CPI reading (+0.2% MoM for June), sparking brief optimism. However, enthusiasm quickly faded as investors reassessed the likelihood of near-term Fed rate cuts. The probability of a rate cut in September dropped from 65% to 58%, and yields on 10- and 30-year Treasury bonds surged, putting pressure on equities.
Inflation: Moderation, But Not Enough for Euphoria
Although Core CPI came in slightly below forecasts, the headline CPI rose by +2.7% YoY—above May's 2.4% and the consensus estimate of 2.6%. Core CPI also ticked up to +2.9% YoY, compared to +2.8% in May. This suggests inflationary pressure remains, particularly in services, despite stabilization in categories like used car prices.
The data did little to build a compelling case for imminent Fed easing. As a result, 10-year Treasury yields climbed to 4.485%, while 30-year yields exceeded 5% for the first time in six weeks. These movements spooked investors, especially in rate-sensitive sectors.
Politics in Play: Pressure on Powell and Trump’s Trade Moves
Further market unease came from U.S. Treasury Secretary Bessent’s remarks that Fed Chair Jerome Powell should step down once his term as Chair ends in May 2026. She also hinted at a possible early replacement, raising concerns about the Fed’s independence and increasing the risk of politically driven monetary policy.
Meanwhile, President Trump's administration continued its active trade negotiations. Officials highlighted progress in U.S.–China talks and a potential August meeting with Chinese Vice Premier He Lifeng. Nvidia was reportedly granted a license to sell its H20 GPUs to Chinese firms—seen as a gesture toward easing tech tensions.
Trump also announced a new trade deal with Indonesia, but its effect may be muted by 19% U.S. tariffs on Indonesian imports. Additionally, the White House imposed or threatened steep tariffs on goods from the EU, Mexico, and Canada—including 50% duties on copper and potential 200% tariffs on pharmaceuticals unless manufacturing is repatriated to the U.S.
Sector Snapshot: Chips Shine, Crypto and Banks Slide
The tech-heavy Nasdaq 100 managed to stay in positive territory, thanks largely to strength in semiconductors. AMD jumped 6%, Nvidia rose over 4%, and Arm Holdings climbed more than 2% after news of relaxed chip export restrictions to China.
Apple also gained slightly after signing a $500 million deal to procure rare earth minerals from Pentagon-backed MP Materials. Meanwhile, Tesla fell more than 1% after opening its first showroom in India and announcing the departure of its North American sales chief.
Crypto-related stocks tumbled after the U.S. House of Representatives failed to advance crypto-friendly legislation. Bitcoin dropped 3%, while Riot Platforms (RIOT), Marathon Digital (MARA), and Coinbase (COIN) fell between 1.5% and 3%.
Among financials, BlackRock (BLK) sank over 5% after reporting lower-than-expected long-term asset inflows. JPMorgan Chase (JPM) dipped 0.7% following an upward revision to its full-year expense forecast. Copper producers like Freeport McMoRan (FCX) and Southern Copper (SCCO) were hit after Morgan Stanley downgraded the sector, citing concerns over demand due to new tariffs.
Upcoming Macro Data: Eyes on PPI, Beige Book, and Retail Sales
Investors now turn their focus to key macroeconomic reports. The June Producer Price Index (PPI) is expected to decline to +2.5% YoY from +2.6% in May. On Wednesday, the Fed will also release its Beige Book—a regional snapshot of economic conditions.
Other key data this week include:
Industrial production (expected at -0.1% MoM),
Retail sales (+0.1% MoM overall; +0.3% excluding autos),
Initial jobless claims (expected to rise to 234,000),
Philadelphia Fed business outlook and NAHB Housing Index,
Friday’s housing starts (+3.3% MoM) and building permits (-0.6% MoM),
University of Michigan consumer sentiment (forecast to rise to 61.5).
Earnings Season: Major Banks and Blue Chips in Focus
Earnings season has kicked off in earnest. On Wednesday, Bank of America, Goldman Sachs, Morgan Stanley, and United Airlines will report. Thursday will bring results from PepsiCo, Abbott, US Bancorp, and GE, with Charles Schwab and American Express closing out the week on Friday.
According to Bloomberg Intelligence, S&P 500 companies are projected to grow earnings by just 2.8% YoY in Q2—the slowest pace in two years. Yardeni Research adds that only six of the 11 S&P 500 sectors are expected to post profit growth, the fewest since Q1 2023.
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