The S&P 500 Index ($SPX) (SPY) closed down -0.07% on Friday, while the Dow Jones Industrial Average ($DOWI) (DIA) fell -0.29%, and the Nasdaq 100 Index ($IUXX) (QQQ) decreased by -0.01%. Meanwhile, June E-mini S&P futures (ESM25) also fell by -0.07%, and June E-mini Nasdaq futures (NQM25) saw a minor drop of -0.01%.

Market Sentiment Ahead of Trade Talks

On Friday, stock indices ended lower as investors exercised caution ahead of weekend discussions between the U.S. and China. Comments from President Trump regarding a potential 80% tariff on China added to market unease, suggesting that tariff levels would be determined in consultation with Treasury Secretary Bessent. Bloomberg Intelligence reports that, in 2024, the average company in the S&P 500 derived 6.1% of its revenue from transactions involving China.

Additionally, remarks from New York Fed President Williams contributed to the market’s downward trend, as he forecasted considerably slower economic growth for the U.S. this year compared to 2024, along with rising inflation and unemployment.

Recent Earnings Performance

Initially, stocks surged on Friday due to the announcement of a trade framework deal between the U.S. and the U.K., which raised hopes for negotiating down Trump’s tariffs. However, this optimism was tempered by mixed earnings results. Microchip Technology rose over +12% after exceeding Q4 net sales expectations and projecting Q1 net sales above consensus. Lyft surged by more than +28% after estimating Q2 gross bookings above expectations. Similarly, Insulet soared over +20% after reporting strong Q1 revenue and raising its full-year forecast.

Conversely, Akamai Technologies dropped more than -10% after forecasting adjusted EPS below consensus, while Expedia Group fell more than -7% due to weaker-than-anticipated Q1 revenue and a lowered revenue forecast for 2025.

Treasury Notes and Global Economic Concerns

Treasury note prices found support due to comments from Japanese Finance Minister Kato, who stated that Japan does not consider selling U.S. Treasury securities in its trade negotiations with the U.S. As of February, Japan was the largest foreign holder of U.S. debt, with $1.13 trillion in Treasury securities. A significant sell-off could lead to a spike in Treasury yields, potentially harming the U.S. economy.

Fed Governor Kugler’s comments added a bearish tone for stocks and bonds as she recommended holding interest rates steady, given the stable U.S. economy and the uncertainty surrounding tariff policies. The markets are currently pricing in a 17% likelihood of a -25 bp rate cut during the FOMC meeting on June 17-18.

Earnings Season Insights

The Q1 earnings reporting season continues, with market consensus indicating +6.7% year-over-year earnings growth for S&P 500 stocks, a decline from earlier expectations of +11.1% made in November. To date, 78% of the 412 reported companies have exceeded estimates. Projections for full-year 2025 corporate profits are now at +9.4%, down from the forecast of +12.5% made in January.

International Market Reactions

Overseas stock markets displayed mixed results on Friday. The Euro Stoxx 50 rose to a five-week high, recording a +0.39% increase. Conversely, China’s Shanghai Composite closed down -0.30%, while Japan’s Nikkei 225 reached a six-week high, closing up +1.56%.

Bond Market Dynamics

June 10-year T-notes (ZNM25) ended up +0.5 ticks, and the 10-year T-note yield decreased by -0.2 basis points to 4.377%. Gains in T-notes were supported by the statements from Kato and Williams, although global trade tensions easing and negative carryover from European government bond weaknesses weighed on T-note prices. Inflation expectations also increased, with the 10-year breakeven inflation rate climbing to a five-week high of 2.323%.

In Europe, government bond yields trended upward, with the 10-year German bund yield rising to a four-week high of 2.588%, finishing up +2.7 basis points to 2.562%. The 10-year U.K. gilt yield climbed to a 2.5-week high of 4.603% and concluded up +2.1 basis points at 4.567%.

Comments from ECB Governing Council members signaled the necessity for another rate cut in June, with indications that the Eurozone has not yet felt the full impact of U.S. tariffs and inflation rates are expected to continue declining. Swaps reflect a 93% probability for a -25 bp rate cut by the ECB during the June 5 policy meeting.

Highlighted Stock Moves

Insulet (PODD) led gains in the S&P 500, closing up more than +20%, after reporting Q1 revenue of $569 million—surpassing the consensus of $543.5 million—and raising its full-year forecast. Microchip Technology (MCHP) followed closely, closing up over +12% after reporting Q4 net sales of $970.5 million, exceeding expectations, and forecasting Q1 net sales significantly above consensus.

In the energy sector, WTI crude prices increased by over +1% to reach a one-and-a-half-week high, leading to gains for stocks like APA Corp (APA), which rose over +3%, and Devon Energy (DVN), which increased more than +2%. Other notable gainers included Exxon Mobil (XOM) and Occidental Petroleum (OXY), both closing up more than +1%.