Stocks See Support as Investors Await Tariff News

US equities are trading higher, led by tech, despite President Trump's aggressive new tariff proposals, which include a 50% duty on copper imports, up to 200% on imported drugs if production isn't repatriated, and a 10% tariff on Indian goods, serving as a limiting factor for broader market gains. While US mortgage applications rose, China's June PPI showed significant deflationary pressures, and the impending Q2 earnings season is projected to deliver the weakest S&P 500 earnings growth in two years, contributing to a cautious outlook ahead of today's FOMC minutes.

Analysis

US equity indices are advancing, with the Nasdaq 100 leading with a gain of +0.83%, driven primarily by strength in large-cap technology stocks and a modest decline in the 10-year Treasury yield, which fell 0.6 bp to 4.393%. However, this positive momentum is being tempered by significant geopolitical and macroeconomic headwinds. President Trump's announcement of aggressive new tariff intentions—including a potential 50% tariff on copper imports, up to 200% on certain pharmaceuticals, and 10% on all Indian goods—has introduced considerable uncertainty and is capping broader market gains. This is reflected in the copper market, where prices fell roughly 3% after surging 13.1% on the initial news. The macroeconomic picture is mixed; while US MBA mortgage applications rose a strong 9.4%, weak data from China, where the Producer Price Index (PPI) fell -3.6% year-over-year for its 33rd consecutive month of contraction, points to persistent deflationary pressures and sluggish global demand. Furthermore, the upcoming Q2 earnings season presents a hurdle, with consensus estimates for S&P 500 companies pointing to a +2.8% year-over-year earnings increase, the smallest in two years, and with the fewest sectors contributing to growth since Q1 2023. This cautious outlook is compounded by impending releases, including the FOMC minutes, with markets pricing in only a 5% chance of a rate cut in July, suggesting monetary policy may remain tight despite pockets of economic weakness.

Key Decisions for Investors

• Investors should immediately review portfolio exposure to sectors directly impacted by proposed tariffs, particularly copper-related equities like FCX and SCCO, and pharmaceutical companies like MRK with global supply chains, given the potential for significant margin pressure.
• Given that S&P 500 Q2 earnings growth is projected to be the weakest in two years, it is prudent to scrutinize companies with high international sales exposure, especially to China, where deflationary pressures are intensifying.
• Monitor upcoming catalysts like the FOMC minutes and Fed official speeches for guidance on how the central bank is balancing inflationary tariff risks against slowing global growth, as a hawkish stance could challenge current equity valuations.
• Consider focusing on idiosyncratic opportunities driven by corporate actions, such as the potential sale of AES or Merck's acquisition of Verona Pharma, which may offer returns uncorrelated to the broader macroeconomic and trade-related risks.