Markets Stay Green on More Tariff Discourse; Earnings from COST, GAP & More

Thursday's trading saw major indexes closing in the green despite midday volatility triggered by a court ruling regarding the reinstatement of President Trump's tariffs; the Dow rose +0.26%, the S&P 500 +0.40%, and the Nasdaq +0.39%. Economic data revealed a significant drop in Pending Home Sales for April, sinking -6.3% month over month, while after-hours earnings reports showed mixed results, with Costco beating expectations and potentially benefiting from tariffs, Gap shares tumbling despite beating estimates due to disappointing Athleta growth and tariff concerns, and Ulta Beauty guiding above consensus despite uncertainty regarding consumer demand.

Analysis

Major U.S. equity indices demonstrated resilience, closing higher on Thursday despite mid-session volatility stemming from a U.S. Court of Appeals ruling that President Trump's tariffs could be reinstated; the Dow Jones Industrial Average rose +0.26%, the S&P 500 +0.40%, and the Nasdaq Composite +0.39%, while bond yields generally retreated with the 10-year at +4.42%. This market strength contrasted with concerning economic data, as April's Pending Home Sales plummeted -6.3% month-over-month, significantly underperforming the expected -1.0% decline and marking the second-worst April on record with an index of +71.3, driven by notable weaknesses in the West (-8.9%) and South (-7.7%). After-market earnings presented a mixed corporate landscape: Costco (COST) reported slight beats on fiscal Q3 revenue ($63.2B, +8% YoY) and EPS ($4.28), and uniquely suggested potential benefits from tariffs due to its bulk sales model, building on a strong earnings history. Conversely, The Gap (GAP) shares tumbled -17% despite Q1 top and bottom-line beats (EPS $0.51, Revenue $3.5B), primarily due to a disappointing -8% YoY decline in Athleta's growth and guidance indicating a potential $100-150 million negative impact from tariffs. Dell Technologies (DELL) saw a positive stock reaction after raising full-year guidance and reporting +12% YoY growth in its Infrastructure Solutions segment, even though Q1 EPS of $1.55 missed consensus but still represented +17% growth from a year ago. Marvell Technology (MRVL) achieved record Q1 revenue of $1.89 billion and beat EPS estimates by a penny at $0.62, driven by a significant +76% growth in its Data Center segment, and also boosted next-quarter guidance. Ulta Beauty (ULTA) delivered strong Q1 results, with EPS of $6.70 significantly beating expectations and revenues of $2.85 billion surpassing forecasts, leading to an +8% share price increase in late trading as it guided above consensus despite acknowledged uncertainty regarding consumer demand.

Key Decisions for Investors

• Investors should closely monitor companies with significant international supply chains for tariff-related volatility, evaluating their specific mitigation strategies or unique positioning, as highlighted by the contrasting outlooks for Costco and The Gap.
• Exercise caution regarding the housing sector following the steep -6.3% month-over-month drop in April's Pending Home Sales, while noting that previous New Home Sales data showed some upside, suggesting a need for nuanced sector analysis.
• Adopt a selective approach within the retail sector, favoring companies like Costco and Ulta Beauty that demonstrate strong fundamentals, positive guidance, and resilience to macro pressures, over those like The Gap facing brand-specific headwinds and significant tariff exposure.
• Consider opportunities in technology firms, particularly those showing robust growth in segments like data centers and infrastructure, such as Marvell Technology and Dell Technologies, given their strong quarterly results and positive forward guidance.
• Place significant weight on forward-looking corporate guidance when making investment decisions, as Dell's positive market reception despite a Q1 EPS miss underscores the market's focus on future outlook over purely historical performance.