Markets Climb on Trade Deals and Investor Optimism

On Monday, U.S. stock indexes closed mostly higher. The S&P 500 and Nasdaq 100 reached new all-time highs, driven by easing geopolitical tensions and investor optimism.

The United States and the European Union reached a deal that sets tariffs at 15% on a significant portion of European exports—substantially lower than earlier threats by Donald Trump, who had suggested tariffs as high as 50%. This resolution reduced uncertainty and sparked renewed interest in risk assets.

In addition, reports emerged suggesting that the U.S. and China may extend their trade truce for another 90 days. High-level talks are expected to take place on August 12 in Stockholm.

Despite the strong start to the day, markets pulled back from their highs by the close. The main reason was weak demand at a $70 billion U.S. Treasury auction of 5-year notes, which pushed yields higher and triggered equity sell-offs. Another concern was the U.S. Treasury’s increased third-quarter borrowing estimate—from $554 billion to $1.01 trillion—which may lead to greater supply of government debt.

Economic data released on Monday helped offset some of the pressure. The Dallas Fed’s manufacturing activity index for July rose to a six-month high, signaling resilience in the industrial sector. This boosted confidence in the underlying strength of the U.S. economy.

Investors face a busy macroeconomic calendar this week:

About 38% of S&P 500 companies will report earnings this week—double the number from last week. All eyes are on tech giants: Microsoft and Meta report Wednesday, while Apple and Amazon follow on Thursday. According to Bloomberg Intelligence, S&P 500 earnings are expected to grow by 4.5% year-over-year in Q2, exceeding early-season forecasts of 2.8%. So far, about one-third of companies have reported, with 82% beating earnings estimates.

International equity markets showed mixed results. The Euro Stoxx 50 fell by 0.27%, Japan’s Nikkei 225 dropped 1.1%, while China’s Shanghai Composite posted a modest 0.12% gain.

The yield on 10-year U.S. Treasuries rose to 4.404% due to weak auction demand and strong equity markets, reducing the appeal of government bonds as safe-haven assets.

European bond yields moved in different directions: German 10-year yields declined, while U.K. 10-year yields edged higher. A European Central Bank official stated that interest rate cuts in September are unlikely unless the economic outlook deteriorates significantly. Markets currently price in just a 17% chance of a rate cut by the ECB in September.

Semiconductor stocks were among the strongest performers following the U.S.–EU trade agreement. AMD, On Semiconductor, and Nvidia all posted gains. Energy stocks also rose, supported by higher oil prices. U.S. LNG producers advanced after the EU committed to increasing energy purchases from the U.S.

Metals and mining stocks came under pressure due to falling gold and copper prices. Newmont and Freeport McMoRan declined sharply.

In individual stories:

Markets are at a delicate crossroads: supported by strong earnings and easing trade tensions, but threatened by rising yields and potential monetary tightening. Investors will be closely monitoring macro data and Fed commentary this week. The outcome could set the tone for the remainder of the summer and determine whether equity indexes continue to reach new highs.