S&P 500 and Nasdaq 100 Post Record Highs on Trade Deals

US equities closed mostly higher, with the S&P 500 and Nasdaq 100 reaching new record highs, primarily fueled by a new US-EU trade deal and optimism regarding a potential US-China tariff truce extension, alongside supportive manufacturing data. However, market gains were partially offset by rising bond yields stemming from weak demand at a Treasury auction and a significantly increased Q3 borrowing estimate. Looking ahead, investor attention will be on the ongoing FOMC meeting, a robust week of Q2 earnings reports from 38% of S&P 500 companies (including key Magnificent Seven members, with Q2 earnings tracking +4.5% versus a +2.8% forecast and 82% of initial reports exceeding estimates), and crucial economic data releases, all while monitoring President Trump's August 1 tariff deadline.

Analysis

US equity markets exhibited a mixed but cautiously optimistic tone, with the S&P 500 and Nasdaq 100 closing at new record highs. The primary catalyst was positive trade news, including a US-EU deal setting tariffs at 15%—lower than previously threatened—and reports of a likely 90-day extension to the US-China tariff truce. This optimism was further supported by a strong July Dallas Fed manufacturing survey, which rose +13.6 to a 6-month high of 0.9. However, gains were capped by headwinds from the bond market, where the 10-year T-note yield rose 1.6 bp to 4.404%. This was driven by weak demand for the Treasury’s $70 billion 5-year note auction, evidenced by a bid-to-cover ratio of 2.31 versus the 2.39 average, and a significant upward revision of the Treasury's Q3 borrowing estimate to $1.01 trillion. Looking forward, the market faces a dense schedule of catalysts, including an FOMC meeting where no rate change is expected, and the busiest week of earnings season, with 38% of S&P 500 companies reporting. Early Q2 earnings results are tracking at +4.5% year-over-year growth, outperforming the +2.8% pre-season estimate, with 82% of reporting firms beating profit expectations.

Key Decisions for Investors

• Given the market's sensitivity to trade policy, investors should closely monitor negotiations ahead of the August 1 tariff deadline, as any deviation from the expected US-China truce could disrupt the current positive sentiment.
• The significant increase in the Treasury's Q3 borrowing estimate to $1.01 trillion and weak auction demand signal potential for continued upward pressure on bond yields, which could act as a headwind for equity valuations, particularly for growth-oriented sectors.
• With 38% of the S&P 500 reporting earnings this week, including key members of the Magnificent Seven, focus should be on company-specific results and forward guidance, as these are likely to be more significant drivers of individual stock performance than broad market sentiment.
• Consider positions in the semiconductor and energy sectors, which demonstrated strong positive reactions to specific catalysts like the US-EU trade deal and rising WTI crude prices, respectively, but remain cautious on mining stocks like NEM and FCX which are under pressure from falling commodity prices.