The S&P 500 Index ($SPX) (SPY) closed down -0.17% on Tuesday, while the Dow Jones Industrials Index ($DOWI) (DIA) fell by -0.38%. In contrast, the Nasdaq 100 Index ($IUXX) (QQQ) rose by +0.18%. Additionally, June E-mini S&P futures (ESM25) decreased by -0.21%, whereas June E-mini Nasdaq futures (NQM25) increased by +0.15%.

Stock indexes experienced volatility, oscillating between gains and losses before settling in a mixed manner. Bank stocks provided a boost to the broader market, highlighted by a +3% increase in Bank of America due to better-than-expected Q1 net interest income reports. Furthermore, market sentiment improved with hopes that President Trump would take a gentler approach to his tariff policies. On Monday, President Trump mentioned considering temporary tariff exemptions on imported vehicles and parts, allowing auto companies more time to establish U.S. manufacturing operations.

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Lower U.S. Treasury note yields on Tuesday also supported equities, as the 10-year T-note yield dropped by -4.1 basis points to 4.333%. The decline followed remarks from Deputy Treasury Secretary Faukender, who indicated that potential changes to trading rules could reduce costs for banks. The Supplementary Leverage Ratio (SLR), established in 2018, applies uniformly to U.S. government debt without risk weightings. Banks contend that this capital rule curtails their ability to purchase Treasuries during times of stress, as they are treated similarly to riskier assets. Although the SLR was eased during the COVID crisis to enhance liquidity in the treasury market, it has since been reinstated.

The latest U.S. economic data came in better than anticipated, offering a positive outlook for stocks. The April Empire manufacturing survey reported a rise of +11.9 to -8.1, outstripping expectations of -13.5. Conversely, the March import price index ex-petroleum remained unchanged month-over-month, falling short of the projected +0.3% increase.

However, stock prices retreated from their peak levels on Tuesday, reflecting comments from European Union (EU) trade chief Sefcovic about the minimal progress made in resolving trade disparities between the EU and the U.S. The EU has proposed the removal of tariffs on industrial goods, including automobiles, but the U.S. has not accepted this offer. Further concerns about the escalating U.S.-China trade war limited stock gains as well. Notably, Boeing’s shares fell over -2% after reports indicated China had instructed its airlines to halt additional aircraft deliveries from Boeing. Also, the U.S. Commerce Department announced investigations into the national security implications of semiconductor and pharmaceutical imports, suggesting potential tariff impositions.

Comments from Atlanta Fed President Bostic on Monday evening indicated a preference for maintaining steady monetary policy. He noted the significance of understanding President Trump’s policies before any adjustments to interest rates could be considered.

On Friday, President Trump announced temporary exemptions for consumer electronics from reciprocal tariffs and a 10% global baseline tariff. However, a 20% tariff remains for electronics imported from China. Last Wednesday, he declared a 90-day pause on higher reciprocal tariffs affecting 56 nations while maintaining the new 10% baseline tariff on nearly all countries. The EU, in turn, announced a 90-day delay on implementing 25% tariffs impacting €21 billion worth of U.S. goods headed for Europe.

For the past five weeks, stocks have faced pressure due to concerns that U.S. tariffs would hamper economic growth and corporate earnings. On March 4, President Trump imposed a 25% tariff on Canadian and Mexican goods and raised the tariff on Chinese imports from 10% to 20%. On April 2, he signed a proclamation to implement a 25% tariff on U.S. auto imports, targeting vehicles and parts manufactured outside the U.S. Mr. Trump stated these tariffs were “permanent” and expressed no intent to negotiate exceptions. As of April 5, a 10% baseline tariff for nearly all nations was enacted. In retaliation, China increased tariffs on all U.S. goods to 125%, up from 84%, as a response to U.S. tariffs that reached 145% on Chinese goods.

These tariff issues have weakened the dollar and propelled gold prices higher. The dollar index recently fell to a three-year low, while gold reached an all-time high. Market participants are anxious about the implications of U.S. trade policies, which have adversely affected consumer confidence and led many companies to halt capital spending plans, adversely impacting GDP growth. Additionally, the dollar is under scrutiny as foreign investors reconsider their dollar-denominated assets in light of tariff strategies that may threaten its reserve currency status.

This holiday-shortened week will focus on updates regarding U.S. trade policy. Coming up on Wednesday, March retail sales are forecasted to rise by +1.4% month-over-month, with March retail sales excluding autos expected to increase by +0.4% month-over-month. March manufacturing production is predicted to improve by +0.3% month-over-month. Furthermore, Fed Chair Powell is scheduled to address the Economic Club of Chicago about the economic outlook. On Thursday, March housing starts are anticipated to decline by -5.7% month-over-month to 1.416 million, with March building permits expected to decrease by -0.6% month-over-month to 1.450 million.

The probability of a -25 basis point rate cut following the May 6-7 FOMC meeting is currently estimated at 20%.

Q1 earnings reporting season commenced last Friday, as major U.S. banks unveiled their results. According to Bloomberg Intelligence, the consensus anticipates Q1 year-over-year earnings growth of +6.7% for S&P 500 companies, a decrease from earlier projections of +11.1% recorded in November. Projections for full-year 2025 corporate profits for the S&P 500 are now set at +9.4%, down from January’s forecast of +12.5%.

In international markets, the Euro Stoxx 50 advanced by +1.20% on Tuesday. Similarly, China’s Shanghai Composite gained +0.15%, while Japan’s Nikkei 225 increased by +0.84%.

Interest Rates

June 10-year T-notes (ZNM25) closed up +10.5 ticks on Tuesday. The 10-year T-note yield dropped by -4.1 basis points to 4.333%. T-notes benefitted from indications of easing price pressures, as the March import price index excluding petroleum rose less than anticipated. Additionally, gains in T-notes were influenced by the potential regulatory changes suggested by Deputy Treasury Secretary Faukender, which may reduce trading costs for banks and enhance liquidity in the treasury market.

Nevertheless, T-note gains are constrained by persistent weakness among 10-year German bunds.