Stock Market Update

[BRIEFING.COM] The stock market faced pressure out of the gate this morning following the announcement of elevated tariff rates for key trading partners, softened economic data prompting concerns about economic and earnings growth potential, and weakness in Amazon (AMZN 216.15, -17.96, -7.7%) and Apple (AAPL 203.08, -4.50, -2.2%) after their earnings reports.

President Trump signed an executive order yesterday that adjusted a new round of reciprocal tariffs set to take effect on August 7, including increases to 50% for Brazil, 35% for Canada (up from 25%), 25% for India, 20% for Taiwan, and a 40% tariff on all transshipped goods, regardless of origin, marking a significant escalation in trade policy.

Global markets and stock futures were lower this morning in response to the broad tariff announcement.

Shares of Amazon are lower today after the company beat EPS expectations and revenue but issued cautious profit guidance and a lower operating income for the current quarter, with disappointing AWS growth a further concern. 

As a result, the consumer discretionary sector (-3.3%) is the worst-performing S&P 500 sector today, followed by the information technology (-1.8%), energy (-1.7%), financials (-1.7%), and communication services (-1.5%) sectors. Losses today are broad-based, with seven sectors trading in negative territory.

A soft payrolls report for July and large downward revisions to May and June prompted concerns about economic and earnings growth prospects, which weren't helped by the weaker-than-expected July ISM Manufacturing Index.

Additionally, today's data could stoke concerns that the Fed is behind the curve, which could pose problems for a richly valued stock market unless it trades through that noise and focuses on the notion that rate cuts are sure to follow.

Today's trade marks a clear risk-off mindset, with a noticeable rotation into more defensive sectors, such as the consumer staple (+0.8%), utilities (+0.4%), and health care (+0.2%) sectors. 

The real estate sector (+0.1%) rounds out the four sectors in positive territory, with a precipitous drop in interest rates contributing to its modest gain. The 10-year note yield is down 13 basis points to 4.23%, reversing its increase from July.

Volatility is unsurprisingly elevated today, with the CBOE Volatility Index up to 19.79 (+18.6%), though this has stabilized some from earlier in the session.

Breadth figures have also modestly improved, with decliners outpacing advancers by a greater than 2-to-1 ratio on the NYSE and a 3-to-1 ratio on the Nasdaq.

Currently, the S&P 500 (-1.6%), DJIA (-1.3%), and Nasdaq Composite (-2.2%) sit just above their session lows.

Reviewing today's data:

• July Nonfarm Payrolls 73K (Briefing.com consensus 102K); Prior was revised to 14K from 147K, July Nonfarm Private Payrolls 83K (Briefing.com consensus 110K); Prior was revised to 3K from 74K, July Unemployment Rate 4.2% (Briefing.com consensus 4.2%); Prior 4.1%, July Avg. Hourly Earnings 0.3% (Briefing.com consensus 0.3%); Prior 0.2%, July Average Workweek 34.3 (Briefing.com consensus 34.2); Prior 34.2
  • The key takeaway from the report is the soft nonfarm payrolls situation, as that will stoke concerns that the Fed is behind the curve, which in turn could stoke concerns that economic and earnings growth prospects are not as bright as currently envisaged. That could pose problems for a richly valued stock market, unless it trades through that noise and focuses on the notion that rate cuts are sure to follow.
• June Construction Spending -0.4% (Briefing.com consensus 0.1%); Prior was revised to -0.4% from -0.3%
  • The key takeaway from the report is the same as the prior month: a downturn in new single-family construction, which is being pressured by higher costs, was the driver behind the weakness in residential spending.
• July S&P Global U.S. Manufacturing PMI - Final 49.8; Prior 52.9
• July ISM Manufacturing Index 48.0% (Briefing.com consensus 49.5%); Prior 49.0%
  • The key takeaway from the report is that 79% of the sector's GDP contracted in July. That is up from 46% in June and suggests the manufacturing sector has not yet seen the benefits of onshoring in response to the tariff actions, which themselves have stoked a good bit of planning uncertainty per the observations of survey respondents.
• July Univ. of Michigan Consumer Sentiment - Final 61.7 (Briefing.com consensus 61.8); Prior 61.8
  • The key takeaway from the report is that consumer sentiment, while not strong, has improved in recent months along with inflation expectations.