U.S. Equities Extend Gains Amid Earnings Momentum
Equity markets advanced further on Tuesday, as the S&P 500 posted its sixth consecutive day of gains. The rally was supported by stronger-than-expected corporate earnings and signs that trade tensions may be easing. In a notable move, the U.S. administration announced a rollback of tariffs on auto parts and granted exemptions on steel and aluminium tariffs for domestic automakers. This gave a lift to cyclical sectors including financials and materials.
Positive earnings reports drove investor optimism. Honeywell rose 5.4% after delivering strong first-quarter results, Sherwin-Williams gained 4.8% thanks to robust demand in its industrial paints segment, and Pfizer advanced 3.2% after beating earnings forecasts, even as revenue declined on lower sales of COVID-related treatments.
Meanwhile, the Cboe Volatility Index (VIX) retreated from its early April highs but remains elevated compared to historical averages, suggesting persistent caution in the market. U.S. Treasury yields also fell, with the 10-year benchmark slipping to 4.17%, reflecting a cautious outlook from bond investors.
Economic Indicators Send Mixed Signals
Despite the rally, the broader economic picture remained uneven. U.S. consumer confidence dropped to a 13-year low in April, reflecting growing concerns about income prospects and the impact of trade policies. Job openings also declined to 7.2 million, edging closer to pre-pandemic levels, though they still slightly outnumber the unemployed, indicating a relatively balanced labour market.
Oil prices dipped nearly 3%, weighed down by concerns over global demand amid ongoing trade uncertainties. Looking ahead, markets are bracing for the latest U.S. nonfarm payroll data, with expectations for a slowdown in job growth, which may reinforce the view that the economy is cooling.
Asia and Europe Grapple with Growth and Political Risks
Asian equity markets were subdued as investors reacted to weak factory activity data from China and Japan. China’s official manufacturing PMI fell to 49.0 in April, marking the steepest contraction in 16 months, as domestic demand faltered under pressure from escalating U.S. tariffs. Geopolitical tensions in India and South Korea added to the unease, dampening sentiment across the region. While Hong Kong registered modest gains, most other markets remained flat or declined.
In Europe, trading was mixed. Germany’s DAX rose 0.8%, the UK’s FTSE 100 climbed 0.6%, while France’s CAC 40 fell 0.2%. The earnings season produced divergent results, with Deutsche Bank reporting a 39% increase in first-quarter profit, driven by strong performance in bond and currency trading. In contrast, BP posted a profit slump, while HSBC’s Q1 profit fell 25% year-on-year due to the absence of one-off gains seen in 2024. However, adjusted earnings were solid, prompting the bank to announce a $3 billion share buyback.
Currencies and Commodities: Dollar Steady, Oil Under Pressure
The U.S. dollar held firm, with the dollar index hovering near 99.2. The euro traded around 1.1372 against the greenback, as traders awaited key economic reports, including the March Core PCE Price Index and the first estimate of Q1 GDP. Oil prices remained under pressure due to weak Chinese factory output, a build-up in U.S. inventories, and lack of progress in Russia-Ukraine ceasefire talks. These factors contributed to a pessimistic demand outlook and placed prices on track for steep monthly losses.
Corporate Earnings Roundup: A Divided Picture
In the U.S., earnings season produced a mix of winners and laggards. Visa beat Wall Street estimates, driven by an 8% increase in payment volumes and a 9% rise in revenue, alongside a $30 billion share buyback plan. Booking Holdings also exceeded expectations, reporting first-quarter profit of $24.81 per share, far surpassing the $17.33 forecast, thanks to growth in room nights and gross bookings. Royal Caribbean raised its full-year profit forecast as demand for high-end cruises surged, with quarterly revenue rising 7.3% year-on-year to $4 billion.
On the downside, Snap declined 14.4% after announcing it would not provide Q2 guidance due to advertising headwinds linked to economic uncertainty and U.S. tariffs. Super Micro Computer fell 15% following a downward revision in its third-quarter sales and earnings guidance, citing customer decision delays. Starbucks also disappointed, with North American same-store sales falling 1% as inflation and economic uncertainty weighed on consumer demand.
Some companies posted mixed results. Pfizer’s Q1 revenue dropped 8% to $13.72 billion due to declining Paxlovid sales, but its earnings beat expectations and the company reaffirmed its full-year guidance. Spotify reported strong subscriber growth, with a 12% increase in premium users and 15% rise in revenue to €4.19 billion, although profit forecasts missed due to higher salary-related taxes. Adidas refrained from raising its 2025 forecast despite solid growth in Europe and Greater China, citing soft U.S. sales and import tariff uncertainty.
Several other names faced challenges from global trade policies. Mondelez exceeded profit expectations, driven by price hikes and new product launches, but warned of possible impacts from U.S. tariffs on pricing and expansion. PayPal beat expectations and maintained its full-year forecast, though concerns persist over competition and margin pressures. General Motors raised its Q1 revenue by 2.3% to $44 billion but withdrew its 2025 forecast, citing tariff uncertainty and suspended its share buyback programme.
Outside the U.S., Rheinmetall reported a 46% surge in Q1 sales, supported by strong demand in its defence business. Lufthansa maintained its 2025 financial targets and reported a 15% improvement in quarterly losses, though it revised down its Q4 capacity forecast due to weak U.S. bookings. Porsche revised its 2025 outlook downward, citing soft Chinese demand, slower electric vehicle adoption, and increased tariff headwinds.
Political Pressure and Central Bank Concerns
President Donald Trump reignited debate over the independence of the Federal Reserve, renewing his criticism of Chair Jerome Powell. He implied he knew more about interest rates and suggested Powell was not performing effectively, increasing concerns that political interference could weigh on monetary policy stability at a time when economic challenges require careful navigation.
Corporate Strategy and M&A Developments
In the corporate strategy space, Amazon clarified that it had no plans to display import charges on its main website in response to tariffs. The idea had briefly been floated for its budget Haul division but was ultimately scrapped, though reports of the move initially triggered a dip in its stock. Hims & Hers Health announced a new partnership with Novo Nordisk to offer the Wegovy weight-loss drug on its telehealth platform, expanding access to obesity treatment. Meanwhile, activist investor Engine Capital called on Lyft to explore a sale, criticizing its board for lacking financial experience. Lyft defended its strategy, citing its European expansion and recent share buyback initiative.
Looking Ahead: Key Data and Earnings on Deck
Investors will be closely watching a slate of key U.S. economic indicators this week, including the Core PCE Price Index, Q1 GDP, pending home sales, and energy inventory data from the EIA. Major corporate earnings are also expected from Microsoft, Meta Platforms, Qualcomm, Caterpillar, and Humana. These reports will provide fresh insights into the health of both the economy and corporate America as the second quarter unfolds.
Conclusion: Volatility Persists Despite Optimism
While strong corporate earnings have underpinned recent gains in equities, underlying risks—ranging from trade uncertainty and political rhetoric to weak global data and inflation pressures—continue to shape market sentiment. A cautious, long-term investment strategy with a diversified portfolio remains vital as the global economic environment remains fluid.
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