U.S. equity markets closed lower on Thursday, with the Dow Jones falling to a one-week low, while the S&P 500 and Nasdaq also faced pressure. Several overlapping factors are driving this decline.
Pressure from Bonds and the Fed
The 10-year Treasury yield rose to 4.32% after Kansas City Fed President Jeffrey Schmid stressed that inflation risks remain greater than labor market risks. His comments reinforced fears that the Fed won’t rush into monetary easing. An unexpected jump in the manufacturing PMI to a three-year high added to the hawkish backdrop.
Futures now price in a 75% chance of a September rate cut, down from 93% a week earlier, and only a 49% chance of another cut in October.
Corporate Earnings and Consumer Spending
Walmart’s earnings fell short of expectations, stoking concerns about consumer spending — the backbone of the U.S. economy. Its shares slid more than 4%.
Still, the broader Q2 earnings season has been much stronger than expected. S&P 500 companies are on track for +9.1% y/y earnings growth, the best in four years, with 83% beating profit forecasts.
Labor Market Weakness
Initial jobless claims climbed to a two-month high of 235,000, while continuing claims rose to 1.97 million — the highest in nearly four years. This suggests workers are finding it harder to secure new jobs, partly offsetting hawkish Fed signals.
Geopolitics and Tariff Risks
Markets are also focused on U.S. efforts to broker peace talks between Russia and Ukraine, with the possibility of a trilateral summit involving Trump. The outcome could have major economic and security implications, especially for Europe.
Meanwhile, Washington is tightening trade policy. New tariffs on steel, aluminum, and consumer goods containing those metals are already in effect. Upcoming measures may target semiconductors (with duties as high as 300%), pharmaceuticals, and imports from India. Bloomberg Economics estimates the average U.S. tariff rate could climb to 15.2%, up sharply from 2.3% in 2024.
Global Markets and Bonds
European stocks edged lower, while China’s Shanghai Composite rallied to a 10-year high. Japan’s Nikkei, however, fell to a one-week low. European government bond yields also rose in tandem with U.S. Treasuries.
Stock Movers
- Walmart (WMT) — down more than 4% after weak Q2 results.
- Nordson (NDSN) — up 6% on stronger-than-expected sales.
- PDD Holdings (PDD) — up 3% on optimism for Chinese equities.
- Hewlett-Packard Enterprise (HPE) — up 3% after a Morgan Stanley upgrade.
- Dayforce (DAY) — up 2% after a $12.3B buyout deal by Thoma Bravo.
U.S. markets are caught between strong earnings momentum and macro-political headwinds. Near-term sentiment will hinge on Powell’s remarks in Jackson Hole and developments around tariffs.
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