Stock Markets Show Mixed Results at Start of Fed Week: Current Stock Market Updates
The week ahead promises significant economic events, including the publication of the July jobs report and the first reading on Q2 gross domestic product (GDP). In a notable development, the U.S. and the European Union (EU) have agreed on a tentative trade deal, a move that is expected to bring both stability and challenges to the global economy.
Under the terms of the agreement, a 15% tariff will be imposed on most goods that the EU exports to the U.S., excluding some goods like aircraft and semiconductor equipment. This tariff rate is a reduction from some previously threatened higher rates but still represents an increase compared to the roughly 2-2.5% pre-Trump level.
The deal is expected to keep U.S. inflation elevated compared to a no-tariff scenario. Estimates suggest a one-off boost to U.S. headline inflation could be around 1.5 percentage points higher due to tariffs. This increased inflation stems from higher prices on imported goods and intermediate inputs, which raises costs throughout the supply chain.
The impact on corporate earnings will vary by sector and firm exposure. U.S. companies that export to Europe may benefit from reduced EU tariffs and increased EU investment in the U.S., including $600 billion in long-term EU investments and $750 billion in U.S. energy exports through 2028. However, companies reliant on EU imports face higher costs, squeezing margins and potentially reducing profitability.
The automotive sector, affected by the 15% tariff ceiling, is expected to remain under pressure, which may be reflected in lower earnings from European automakers. On the other hand, sectors like energy and industrial sectors may see a boost due to increased U.S. exports.
Megan Horneman, chief investment officer at Verdence Capital Advisors, believes these trade deals can benefit American companies in the long run. Morgan Stanley analyst Erik Woodring expects Apple to report solid fiscal third-quarter results, while CFRA Research analyst Arun Sundaram expects Amazon to beat on both top and bottom lines.
The U.S.'s biggest trade partner is the 27-nation bloc of the European Union. The robust U.S. stock market performance and consumer spending may help cushion demand for EU goods, slightly offsetting negative effects. Overall, the trade deal reduces policy uncertainty and downside risks to growth, which can support stock market stability and investor confidence, even as inflation and margin pressures remain elevated.
Negotiations for the current 50% tariff on steel and aluminum imports were not part of the agreement. President Donald Trump's stance on interest rates will be closely watched, with no rate cut expected at the July Fed meeting.
In the corporate earnings front, Amazon.com and Apple are set to report their second-quarter earnings after Thursday's close. Nike stock was the best performing Dow Jones stock on Monday, gaining 3.9% after an upgrade from J.P. Morgan Securities analyst Matthew Boss. The price target on Nike stock was raised to $93 from $64 by Matthew Boss, representing an implied upside of 17% to current levels.
The Federal Reserve is scheduled to announce its policy on Wednesday. The June Personal Consumption Expenditures (PCE) Price Index will also be released, providing insights into the state of inflation in the U.S. economy.
References:
- CNBC
- The Wall Street Journal
- Bloomberg
- Reuters
- Politico
- In light of the trade deal between the U.S. and EU, investors might consider the implications for companies involved in stock-market trading, particularly those that export to Europe, as tariffs could affect their profitability.
- As the week ahead brings economic events like the July jobs report and Q2 GDP reading, coupled with the agreement on trade tariffs, finance investors should monitor the stock-market closely for potential investments or adjustments, as the trade deal can support stock market stability while inflation and margin pressures remain elevated.
