A Modest Retreat in Equities Amid Cautious Optimism
US equity markets ended a six-day winning streak on Tuesday, with modest declines across major indices. The S&P 500 and the Nasdaq Composite each fell by 0.4%, while the Dow Jones dipped 0.3%. Gains were led by traditionally defensive sectors such as healthcare and utilities, whereas energy lagged. The economic calendar was relatively light, but yields on US government bonds edged higher, with the 10-year Treasury yield climbing to 4.49%.
Comments from Federal Reserve officials added a layer of caution. St. Louis Fed President Alberto Musalem warned that trade tariffs could dampen economic growth and soften the labour market. Meanwhile, Atlanta Fed President Raphael Bostic reiterated his projection for only a single rate cut in 2025, highlighting that tariffs have had a greater-than-expected impact on the economy.
Corporate Earnings Maintain Market Focus
As the quarterly earnings season nears completion, corporate performance remained a central narrative. Approximately 93% of S&P 500 constituents have now reported results, with first-quarter earnings growth on track to reach 13%, well ahead of earlier estimates.
Retailers are currently under the spotlight, with Home Depot delivering stronger-than-forecast sales of $39.86 billion in Q1 2025, marking a 9.4% year-on-year increase. However, adjusted earnings per share came in at $3.56, missing expectations. Despite a slight decline in comparable sales and external headwinds like weather and exchange rates, management reaffirmed its full-year outlook and stated there are no plans to raise prices in response to tariffs.
Among other notable corporate updates:
- Airbnb shares fell 3.3% after the Spanish government ordered the platform to remove over 65,000 listings due to alleged regulatory breaches.
- Pfizer rose 2.3% after securing exclusive global rights (excluding China) to a cancer treatment candidate in a deal worth up to $6.05 billion.
International equity markets advanced, supported by a rebound in eurozone consumer confidence and interest rate cuts in China. Despite some lingering uncertainty, the overall market backdrop continues to support equity valuations. US mid- and small-cap shares, along with non-US equities, continue to post robust year-to-date performance.
Market and Economic Developments
Asian Markets Display Mixed Sentiment
Asian equities presented a mixed picture on Wednesday. Japanese markets declined due to weaker trade performance linked to US tariffs. In contrast, Australian equities advanced, supported by commodity price gains and dovish signals from the Reserve Bank. Chinese stocks also rose following further interest rate cuts, although gains were capped by renewed tensions with the US over chip restrictions.
US Futures Slide as Deficit Fears Resurface
US equity futures moved lower amid rising concerns over the federal budget and a widening fiscal deficit. Geopolitical tensions also escalated, with China accusing the US of undermining trade negotiations. Meanwhile, Federal Reserve officials signalled a prolonged pause in interest rates. Moderna gained on updated guidance related to vaccine booster demand.
Europe Rises on Pharma Strength and Fiscal Optimism
European markets posted solid gains, with the STOXX 600 rising 0.7% and the STOXX 50 up 0.4%. The rally was led by heavyweight pharmaceutical names and optimism about increased government spending across Europe. Consumer discretionary and banking sectors also contributed, driven by strong performances from LVMH, BMW, BBVA, and UniCredit. Vodafone jumped 5.7% after announcing a €2 billion share buyback.
Currency and Commodities: Dollar Weakens, Oil Gains
The US Dollar Index declined for the third consecutive session, reaching 99.7, close to a two-week low. The weakness was driven by growing concerns over the US economic and fiscal outlook, including delays to tax reform and a credit rating downgrade by Moody’s. Meanwhile, the euro strengthened, with EUR/USD trading at 1.1329, as markets assessed the impact of US trade policy and anticipated central bank meetings.
Oil prices rose 1.5% in morning trade following reports that Israel is preparing for a potential military strike on Iranian nuclear facilities, raising fears of regional supply disruptions. The gains were further supported by a surprise increase in US crude inventories, while declining gasoline and distillate stockpiles indicated tightening market conditions.
Company Highlights
Nvidia Adjusts to China AI Export Curbs
Nvidia CEO Jensen Huang stated that US export controls on AI chips had not curbed innovation in China but instead accelerated domestic development, cutting Nvidia’s market share in the country from 95% to 50%. Speaking at Computex, Huang criticized the restrictions and outlined Nvidia’s strategy, which includes developing compliant chips and opening a new R&D centre in Shanghai.
Google Reinforces AI Strategy
At its I/O conference, Google unveiled a suite of AI initiatives, including a $249.99/month “AI Ultra Plan” and broader access to its new “AI Mode” in Search. The company underscored its leadership in generative AI, boasting over 400 million monthly Gemini users. Nevertheless, Alphabet shares fell amid growing concerns around declining search traffic, legal scrutiny, and shifting user behavior toward AI chatbots.
Tesla Targets Robotaxi Rollout
Elon Musk affirmed that Tesla is recovering from recent sales declines and reiterated his commitment to the company despite ongoing political distractions and controversies over his compensation and role at OpenAI. Musk announced plans to launch a self-driving ride-hailing service in Austin next month, with a goal to scale up to one million robotaxis by late 2026, posing competitive pressure on players like Uber and Lyft.
Partnerships and Analyst Updates
- Infineon and Nvidia announced a partnership to develop high-voltage direct current (HVDC) power delivery systems for AI data centres. This approach aims to reduce energy loss, enhance performance, and support sustainability in large-scale AI workloads.
- Palo Alto Networks reported a 15% revenue increase to $2.29 billion in Q3, driven by subscription and product growth. However, profit fell to $262.1 million due to rising costs. The company raised full-year earnings guidance, though shares dropped almost 4% in after-hours trading.
- Wells Fargo initiated coverage on SAP with an “Overweight” rating and a €345 price target, citing the firm’s cloud-first transformation and dominant ERP market position. The bank expects operating margins to exceed 30% by 2027, supported by robust free cash flow.
- Goldman Sachs downgraded Allianz to “Neutral” from “Buy” after a 22% rally in the share price, citing valuation concerns. It also reduced 2025 EPS estimates by 8% due to elevated loss ratios and underperformance in asset management, lowering its 12-month price target from €393 to €374.
- Evercore ISI maintained an “Outperform” rating on Dell, citing strong momentum in enterprise AI following new AI server launches and a mobile workstation featuring an enterprise-grade NPU. The firm sees Dell as a key player for businesses bringing AI workloads on-premise to manage costs.
Looking Ahead
Today’s market focus will be on the EIA Crude Oil Inventories report and speeches from several Federal Reserve officials. Investors are also awaiting earnings from Target, Lowe’s, Medtronic, TJX Companies, and VF Corporation, which are expected to offer insights into consumer spending trends, healthcare demand, and the broader economic outlook.
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