Trade Deals and Earnings Optimism Boost Stocks

Stock indexes were mostly higher, with the S&P 500 and Nasdaq 100 hitting new record highs, primarily driven by positive trade news, including a new EU-US deal with reduced tariffs and an expected 90-day extension of the US-China tariff truce, alongside stronger-than-anticipated US economic data. This bullish sentiment is further supported by early Q2 S&P 500 earnings tracking above expectations as the busiest week of earnings season begins, while investors also await the FOMC meeting and crucial economic data releases later this week.

Analysis

US equity markets are exhibiting strength, with the S&P 500 and Nasdaq 100 achieving new record highs, primarily fueled by positive developments on the trade front. A new US-EU trade agreement, which sets tariffs at 15% instead of the previously threatened 50%, alongside reports of a likely 90-day extension to the US-China tariff truce, has significantly eased geopolitical risk. This bullish sentiment is further supported by stronger-than-expected domestic economic data, notably the July Dallas Fed manufacturing survey, which surged to a six-month high of 0.9, starkly beating the consensus forecast of -9.0. The market is also being propelled by a robust start to the Q2 earnings season, with S&P 500 earnings tracking a +4.5% year-over-year increase, surpassing pre-season expectations of +2.8%. Sector-specific movements are distinct: chipmakers like Advanced Micro Devices (+4%) and energy producers such as Devon Energy (+2%) are rallying on trade news and higher oil prices, respectively. Conversely, mining stocks like Newmont (-3%) are under pressure from declining commodity prices, and individual names like Revvity (-9%) have been punished for cutting full-year EPS guidance. In fixed income, the 10-year T-note yield has risen 1.6 bp to 4.404% as risk-on sentiment reduces safe-haven demand, though the trade deals are tempering inflation concerns. All eyes are now on the busiest week of earnings, featuring reports from Magnificent Seven members, and the upcoming FOMC meeting, where federal funds futures are pricing a 64% probability of a rate cut in September.

Key Decisions for Investors

• Closely monitor earnings reports and forward guidance from Magnificent Seven members this week, as their performance will be a critical determinant of market trajectory given their heavy index weighting.
• Consider tactical exposure to semiconductor and energy sectors, which are showing clear positive momentum from specific catalysts like the US-EU trade deal and rising crude prices, while exercising caution with materials stocks facing commodity headwinds.
• Pay attention to the upcoming FOMC meeting and key economic data releases, including Q2 GDP and July payrolls, as these will shape expectations for the Federal Reserve's September policy decision, which the market is increasingly pricing in.
• Scrutinize individual company downgrades and guidance revisions, such as those affecting Revvity and Cisco, as the market is demonstrating high sensitivity to negative news amidst record-high valuations.