The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.72%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.64%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.58%.  June E-mini S&P futures (ESM25) are up +0.64%, and June E-mini Nasdaq futures (NQM25) are up +1.48%. 

Stock indexes on Tuesday recovered from early losses and added to Monday’s sharp rally, with the S&P 500 posting a 2-1/4 month high and the Nasdaq 100 posting a 2-1/2 month high.  Easing inflation pressures boosted stocks after Tuesday’s US Apr consumer price report rose less than expected.  Stocks also had carryover support from Monday when China and the US agreed to cut tariffs and de-escalate their trade war. 

Also, a rally in chip makers on Tuesday supported the overall market on the news that Nvidia and Advanced Micro Devices will supply semiconductors to Saudi Arabian artificial intelligence company Humain for a data center project.  On Tuesday, the Commerce Department said it is rescinding the AI diffusion rule launched by President Biden, and the Trump administration plans to overhaul regulations on the export of semiconductors used in artificial intelligence that could shift toward negotiating individual deals with countries.

US Apr CPI rose +2.3% y/y, slightly weaker than expectations of +2.4% y/y and the smallest year-on-year increase in 4 years.  Apr CPI ex-food and energy rose +2.8% y/y, unchanged from March and right on expectations. 

The easing of US-China trade tensions has dampened speculation the trade turmoil would push the US economy into recession.  On Tuesday, JPMorgan Chase boosted its US 2025 GDP forecast to +0.6% from a previous estimate of +0.2%, saying that the trade truce between China and the US reduces the risk of recession to below 50%. 

Weakness in health insurance stocks weighed on the Dow Jones Industrials Tuesday, with UnitedHealth Group sinking more than -17% to lead health insurance stocks lower after CEO Witty stepped down for personal reasons, effective immediately, and the company suspended its 2025 outlook as medical expenditures are expected to be higher than anticipated. 

Negative trade comments from Treasury Secretary Bessent Tuesday were bearish for stocks when he said the European Union suffers from a “collective action problem” that’s hampering trade negotiations.  He said trade talks between the US and Europe “may be a bit slower.”

This week, the markets will focus on tariff news and the prospects for additional trade deals.  On Thursday, Apr retail sales are expected at +0.1% m/m, and Apr retail sales ex-autos are expected at +0.3% m/m.  Also, on Thursday, Apr PPI final demand is expected at +0.2% m/m and +2.5% y/y, with Apr PPI ex-food and energy expected at +0.3% m/m and +3.1% y/y.  Finally, on Thursday, Apr manufacturing production is expected to fall by -0.4% m/m.  On Friday, Apr housing starts are expected to be up +3.1% m/m to 1.365 million, while Apr building permits are expected to be down -1.2% m/m to 1.450 million.  Also, on Friday, the preliminary May University of Michigan US consumer sentiment index is expected to rise +1.1 points to 53.3. 

The markets are discounting the chances at 8% for a -25 bp rate cut after the June 17-18 FOMC meeting.

Q1 earnings reporting season is winding down.  So far, over 75% of companies in the S&P 500 have reported quarterly results, and 77% have beaten estimates, the highest since Q2 of 2024.  Earnings growth in Q1 is running at +13.1%, compared with just +6.6% expected before the start of the season.  Full-year 2025 corporate profits for the S&P 500 are seen rising +9.4%, down from the forecast of +12.5% in early January.  

Overseas stock markets on Tuesday settled higher.  The Euro Stoxx 50 closed up +0.44%.  China’s Shanghai Composite climbed to a 1-1/2 month high and closed up +0.17%.  Japan’s Nikkei Stock 225 rallied to a 2-1/2 month high and closed up +1.43%.

Interest Rates

June 10-year T-notes (ZNM25) Tuesday closed down -6 ticks.  The 10-year T-note yield rose +2.8 bp to 4.499%.  June T-notes on Tuesday gave up an early advance and fell to a 1-month low, and the 10-year T-note yield climbed to a 1-month high of 4.503%. The weakness in European government bonds Tuesday weighed on T-note prices.  Also, Tuesday’s rally in the S&P 500 to a 2-1/4 month high reduced safe-haven demand for government debt.  T-notes on Tuesday initially moved higher on some Fed-friendly inflation news after the US Apr CPI report rose less than expected.

European government bond yields on Tuesday moved higher.  The 10-year German bund yield rose to a 1-month high of 2.680% and finished up +3.2 bp on that high.  The 10-year UK gilt yield rose to a 4-week high of 4.675% and is up +2.8 bp to 4.670%.

The German May ZEW survey expectations of economic growth rose +39.2 to 25.2, stronger than expectations of 11.3. 

Swaps are discounting the chances at 88% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

US Stock Movers

Chip stocks rallied for a second day on Tuesday to lift the overall market.  Nvidia (NVDA) and Micron Technology (MU) closed up more than +5%, and Advanced Micro Devices (AMD), Broadcom (AVGO), and KLA Corp (KLAC) closed up more than +4%.  Also, Lam Research (LRCX) and Applied Materials (AMAT) closed up more than +3%.  In addition, NXP Semiconductors NV (NXPI), Microchip Technology (MCHP), and ON Semiconductor (ON) closed up more than +2%

Coinbase Global (COIN) closed up more than +23% after S&P Dow Jones Indices said the company would join the S&P 500 Index before the start of trading on May 19.

Super Micro Computer (SMCI) closed up more than +15% after Raymond James initiated coverage on the stock with a recommendation of outperform and a price target of $41.

Palantir Technologies (PLTR) closed up more than +8% after CTBC Securities Investment Service initiated coverage on the stock with a buy recommendation and a price target of $142.30

ON Holding (ONON) closed up more than +11% after reporting Q1 net sales of CHF726.6 million ($862.8 million), stronger than the consensus of CHF684.2 million ($812.4 million).

XP Inc (XP) closed up more than +3% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $24.

Caterpillar (CAT) closed up more than +2% after Baird upgraded the stock to outperform from neutral with a price target of $395. 

UnitedHealth Group (UNH) closed down more than -17% to lead health insurance stocks lower after CEO Witty stepped down for personal reasons, effective immediately, and the company suspended its 2025 outlook as medical expenditures are expected to be higher than anticipated.  Also, Elevance Health (ELV) and Humana (HUM) closed down more than -9%, and CVS Health (CVS) and Centene (CNC) closed down more than -6%.  In addition, Molina Healthcare (MOH) closed down more than -5%, and Cigna Group (CI) closed down more than -4%. 

Defensive food and beverage stocks were under pressure Tuesday due to strength in the broader market.  Mondelez International (MDLZ), Campell’s Company (CPB), Conagra Brands (CAG), McCormick & Co (MKC), and Hershey (HSY) closed down more than -2%.  Also, Kraft Heinz (KHC), PepsiCo (PEP), Monster Beverage (MNST), Hormel Foods (HRL), and General Mills (GIS) closed down more than -1%. 

Rapid7 Inc (RPD) closed down more than -8% after D.A. Davidson downgraded the stock to underperform from neutral with a price target of $21.

Simon Property Group (SPG) closed down more than -6% after forecasting full-year FFO/share of $12.40 to $12.65, the midpoint below the consensus of $12.56.

Earnings Reports (5/14/2025)

Cisco Systems Inc (CSCO), DXC Technology Co (DXC), Dynatrace Inc (DT), Millrose Properties Inc (MRP), New Fortress Energy Inc (NFE), STERIS PLC (STE).