The S&P 500 Index ($SPX) (SPY) on Tuesday rose by +0.23%, the Dow Jones Industrials Index ($DOWI) (DIA) rose by +0.34%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose by +0.74%. December E-mini S&P futures (ESZ25) rose +0.31%, and December E-mini Nasdaq futures (NQZ25) rose +0.83%.
US stocks on Tuesday received support from expectations of a dovish outcome from the 2-day FOMC meeting, which ends on Wednesday, with the FOMC generrally expected to halt its quantitative tightening regime. Stocks also received a boost from the -0.6 bp decline in the 10-year T-note yield and the stronger-than-expected Richmond Fed and US consumer confidence reports.
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The markets are discounting a 100% chance that the FOMC, at the end of its 2-day meeting on Wednesday, will announce a -25 bp rate cut in its federal funds target range to 3.75%-4.00%. Assuming the Fed proceeds with this week’s -25 bp rate cut, the markets are then discounting a 90% chance of another -25 bp rate cut at the next FOMC meeting on December 9-10. The markets are discounting an overall 115 bp rate cut by the end of 2026 to 2.95% from the current effective federal funds rate of 4.10%.
The FOMC at this week’s meeting is not scheduled to release a Summary of Economic Projections, which contains the Fed’s dot plot. That means the markets on Wednesday will hear from Fed Chair Powell at his regular post-meeting press conference, but will not receive an update from other Fed officials on their views of the future course of interest rates.
The markets are also expecting the FOMC to announce on Wednesday that it is ending its quantitative tightening, which involves allowing its balance sheet to decline. A halt to the Fed’s quantitative tightening would be supportive for the stock and bond markets, as the Fed would no longer be draining liquidity from the US financial system.
The Aug FHFA US house price index rose +0.4% m/m, which was stronger than expectations of -0.1%. Meanwhile, the S&P Cotality CS US 20-city house index rose by +0.19% m/m and +1.58% y/y, which was stronger than expectations of -0.10% m/m and +1.30% y/y.
The Oct Richmond Fed manufacturing index rose 13 points to -4, which was stronger than market expectations of a 5 point rise to -12.
The Oct Conference Board US consumer confidence index fell -1.0 point to 94.6 from a revised 95.6, which was stronger than expectations of 93.4.
Stocks had carry-over support from Monday’s news that US and Chinese negotiators, who met over the weekend in Malaysia, reached a tentative trade agreement that is expected to be officially announced at Thursday’s summit between Presidents Trump and Xi on the sidelines of the APEC conference in South Korea. Treasury Secretary Bessent said the agreement means the US threat of a 100% tariff on US imports from China, set to start November 1, is “effectively off the table.” Meanwhile, China agreed not to restrict the export of rare earth metals for at least one year and to buy a “substantial” amount of US soybeans. The two sides also made progress on shipping fees and US demands that China crack down on the export to the US of fentanyl and precursors. The two sides may also reach an agreement that would allow US consumers to continue to access TikTok.
This is a heavy earnings week, with 173 of the S&P 500 companies reporting earnings. Notably, five of the Magnificent Seven companies report earnings this week. Alphabet, Meta, and Microsoft report on Wednesday, and Apple and Amazon.com report on Thursday. Q3 earnings have been running strong so far. According to Bloomberg Intelligence, 84% of the S&P 500 companies that have reported so far have beaten forecasts, on course for the best quarter since 2021. However, Q3 profits are expected to have risen by +7.2% y/y, the smallest increase in two years. Also, Q3 sales growth is projected to slow to +5.9% y/y from +6.4% in Q2.
The markets are monitoring US-Canada trade relations after President Trump said on Saturday that he would impose a new 10% tariff on US imports from Canada as punishment for last week’s anti-tariff advertisement released by the provincial government of Ontario that featured former President Reagan’s criticism of tariffs. Mr. Trump initially said he was halting US trade negotiations with Canada because of the ad, but he escalated the punishment this past weekend by imposing a new 10% tariff, even though Ontario had agreed to pause the ad campaign.
Regarding President Trump’s reciprocal tariffs, markets are looking ahead to oral arguments at the Supreme Court scheduled for November 5 on whether the tariffs are legal. Lower courts have already ruled that Mr. Trump’s reciprocal tariffs are illegal, finding they are based on a specious claim of emergency authority. If the US Supreme Court upholds those rulings and strikes down the tariffs, then the US government will have to refund the reciprocal tariffs already collected, and Mr. Trump’s power to impose tariffs will be limited to well-founded sections of US trade law. Observers expect the US Supreme Court to announce its final ruling on the reciprocal tariffs by late 2025 or early 2026.
The US government shutdown continues into its fifth week, weighing on market sentiment and the US economy. The government shutdown is delaying the release of government reports, including all the recent weekly unemployment claims reports, the September unemployment and payroll report, Aug trade balance, Sep retail sales, Sep PPI, Sep housing starts, Sep industrial production, Sep leading indicators, and others. Bloomberg Economics estimates that 640,000 federal workers will be furloughed during the shutdown, which would expand jobless claims and push the unemployment rate up to 4.7%.
Overseas stock markets closed lower on Tuesday. The Euro Stoxx 50 fell -0.12%. China’s Shanghai Composite closed down -0.22% after Monday’s rally of +1.18%. Japan’s Nikkei Stock 225 closed down -0.58% after Monday’s rally of +2.46%.
Interest Rates
December 10-year T-notes (ZNZ5) on Tuesday rose by +2.5 ticks. The 10-year T-note yield fell -0.6 bp to 3.974%. T-note prices saw support from hopes that the FOMC, at the conclusion of its meeting on Wednesday, will end its quantitative tightening regime.
T-note prices were undercut by the stronger-than-expected US economic reports, including housing prices, the Richmond Fed report, and US consumer confidence. T-notes continued to see reduced safe-haven demand after Monday’s news of a preliminary US-China trade agreement.
T-note prices have underlying support from the ongoing US government shutdown, which could lead to additional job losses, reduced consumer spending, and a weakened US economy, potentially allowing the Fed to continue cutting interest rates.
European government bond yields were mixed. The 10-year German bund yield rose +0.8 bp to 2.623%. The 10-year UK gilt yield fell -0.1 bp to 4.400%.
Swaps are discounting a 1% chance for a -25 bp rate cut by the ECB at its next policy meeting on October 30.
US Stock Movers
The Magnificent Seven stocks all closed higher on Tuesday, except for a -0.50% decline in Alphabet (GOOG). Nvidia (NVDA) rose by nearly +5%, and Microsoft (MSFT) rose by nearly +2%.
Microsoft (MSFT) received a boost from news that it will take a 27% ownership stake, valued at about $135 billion, in the restructured for-profit OpenAI entity.
Nvidia (NVDA) saw support after its CEO announced new partnerships and said the company’s latest chips will produce half a trillion dollars of revenue. Nvidia also announced a new system that enables its AI chips to be used with quantum computers.
Nvidia (NVDA) and Intel (INTC) both saw gains of about +5%, but most of the other chip stocks showed losses, giving back some of Monday’s gains.
PayPal (PYPL) rallied nearly +4% on a CNBC report that Open AI has agreed to embed Paypal’s digital wallet into ChatGPT.
Regeneron Pharmaceuticals (REGN) rose more than +11% and was the largest gainer in the Nasdaq 100 index, with support from a revenue beat.
UPS (UPS) rallied nearly +8% after reporting favorable adjusted earnings.
D.R. Horton (DHI) fell by nearly -3% after reporting an earnings miss.
Royal Caribbean (RCL) fell by more than -8% after an earnings miss.
Earnings Reports(10/28/2025)
CVS Health Corp (CVS), ITT Inc (ITT), Penske Automotive Group Inc (PAG), Esab Corp (ESAB), Etsy Inc (ETSY), Timken Co/The (TKR), Ionis Pharmaceuticals Inc (IONS), Phillips 66 (PSX), IDEX Corp (IEX), Virtu Financial Inc (VIRT), Silgan Holdings Inc (SLGN), Centene Corp (CNC), OGE Energy Corp (OGE), Fortive Corp (FTV), Garmin Ltd (GRMN), Boeing Co/The (BA), Hayward Holdings Inc (HAYW), Watsco Inc (WSO), Flex Ltd (FLEX), Gates Industrial Corp PLC (GTES), GE HealthCare Technologies Inc (GEHC), Avantor Inc (AVTR), Old Dominion Freight Line Inc (ODFL), Prosperity Bancshares Inc (PB), Automatic Data Processing Inc (ADP), Clarivate PLC (CLVT), Kraft Heinz Co/The (KHC), Leonardo DRS Inc (DRS), Verisk Analytics Inc (VRSK), Otis Worldwide Corp (OTIS), TE Connectivity PLC (TEL), Fiserv Inc (FI), SiteOne Landscape Supply Inc (SITE), Reynolds Consumer Products Inc (REYN), Clean Harbors Inc (CLH), Littelfuse Inc (LFUS), Avnet Inc (AVT), NiSource Inc (NI), Generac Holdings Inc (GNRC), Entergy Corp (ETR), Cognizant Technology Solutions (CTSH), Smurfit WestRock PLC (SW), United Therapeutics Corp (UTHR), Verizon Communications Inc (VZ), Caterpillar Inc (CAT), Evercore Inc (EVR), Seaboard Corp (SEB), Oshkosh Corp (OSK), Masco Corp (MAS), Kirby Corp (KEX), Align Technology Inc (ALGN), Chipotle Mexican Grill Inc (CMG), EPR Properties (EPR), MercadoLibre Inc (MELI), MGM Resorts International (MGM), FMC Corp (FMC), Hanover Insurance Group Inc/Th (THG), Everest Group Ltd (EG), Extra Space Storage Inc (EXR), CH Robinson Worldwide Inc (CHRW), Cognex Corp (CGNX), American Water Works Co Inc (AWK), Sun Communities Inc (SUI), Mid-America Apartment Community (MAA), eBay Inc (EBAY), Coca-Cola Consolidated Inc (COKE), Tyler Technologies Inc (TYL), Dayforce Inc (DAY).
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