US Stock Markets Rally as Trade Deal Boosts Investor Confidence

The S&P 500 Index ($SPX) (SPY) closed Thursday up +0.58%, while the Dow Jones Industrials Index ($DOWI) (DIA) rose +0.62%, and the Nasdaq 100 Index ($IUXX) (QQQ) increased by +0.98%. June E-mini S&P futures (ESM25) are up +0.61%, and June E-mini Nasdaq futures (NQM25) gained +0.97%.

Market Overview

Stock indexes closed higher on Thursday, with the S&P 500 and Nasdaq 100 reaching six-week highs. The Dow Jones Industrials also hit a five-week high. This positive momentum followed President Trump’s announcement of a “major” trade deal with the UK, which raised hopes for progress in U.S. tariff negotiations. Investors reacted favorably, spurred by the potential for reduced tariffs and diminished risks to economic growth and corporate earnings. President Trump encouraged investors to buy stocks, suggesting potential progress in U.S.-China trade discussions.

Sector Performance

Semiconductor stocks continued their rally from Wednesday, driven by a Bloomberg report indicating that the Trump administration plans to lift AI chip restrictions imposed during the Biden administration. In contrast, pharmaceutical stocks faced pressure as Politico reported that President Trump aims to cut drug prices by linking U.S. government payments for certain medicines to international prices.

Economic Indicators

Economic data released on Thursday led to higher bond yields and a negative impact on stocks after weekly initial unemployment claims fell more than expected, suggesting a robust labor market. Additionally, Q1 nonfarm productivity posted its first decline in nearly three years, dipping by -0.8%, while unit labor costs surged by +5.7%, exceeding expectations.

Initial unemployment claims dropped by -13,000 to a total of 228,000, outperforming forecasts of 230,000. The markets are currently pricing in a 17% probability of a -25 basis point rate cut following the June 17-18 Federal Open Market Committee (FOMC) meeting.

Earnings Season and Future Projections

The ongoing Q1 earnings season shows a consensus for S&P 500 earnings growth of +6.7% year-over-year, down from earlier forecasts of +11.1%. So far, 78% of the 386 S&P companies that have reported their results surpassed estimates. Looking ahead, full-year 2025 corporate profits for the S&P 500 are projected to rise +9.4%, lower than January’s forecast of +12.5%.

International Markets

International stock markets also settled higher on Thursday. The Euro Stoxx 50 climbed to a five-week high, ending up +1.12%. In China, the Shanghai Composite closed up +0.28%, while Japan’s Nikkei 225 rose +0.41% to a one-and-a-half month high.

Interest Rates and T-Bond Auctions

June 10-year T-notes (ZNM25) finished down -24 ticks, with the 10-year T-note yield increasing +10.4 basis points to 4.373%. The sell-off in T-notes occurred as safe-haven demand waned amid a significant stock market rally and improved trade outlook. Additionally, rising inflation expectations added pressure, with the 10-year breakeven inflation rate hitting a one-and-a-half week high of 2.313%.

T-note prices fell further during a subpar $25 billion 30-year T-bond auction, marking a bid-to-cover ratio of 2.31, below the ten-auction average of 2.42. In Europe, government bond yields rose, with the 10-year German bund yield up +6.0 basis points to 2.535% and the 10-year UK gilt yield climbing +8.6 basis points to 4.546%.

European Economic Data

German economic data presented a mixed picture. March industrial production rose +3.0% month-over-month, surpassing expectations of +1.0% and indicating the strongest growth in nearly three and a half years. Conversely, March exports rose only +1.1%, slightly exceeding the +1.0% forecast, while imports unexpectedly fell -1.4% against a predicted rise of +0.4%.

The Bank of England (BOE) cut its official bank rate by -25 basis points to 4.25%, with Governor Bailey citing easing inflationary pressures.

Swaps currently reflect a 93% likelihood of a -25 basis point rate cut by the European Central Bank (ECB) during its June 5 policy meeting.

Notable Stock Movements

Chip stocks continued to rise, with significant gains following news of potential regulatory rollbacks on AI chip controls. Companies such as Marvell Technology (MRVL), Intel (INTC), Micron Technology (MU), and ON Semiconductor (ON) each saw increases of more than +3%. Others like Microchip Technology (MCHP) and GlobalFoundries (GFS) closed up more than +2%. Notably, Advanced Micro Devices (AMD), Analog Devices (ADI), KLA Corp (KLAC), and NXP Semiconductors NV (NXPI) saw gains exceeding +1%.

Energy stocks surged as WTI crude oil prices rose more than +2%. Occidental Petroleum (OXY) gained over +6%, followed by Devon Energy (DVN) and Diamondback Energy (FANG) with increases exceeding +5%. Companies like APA Corp (APA) and Haliburton (HAL) also saw gains beyond +4%.

With Bitcoin prices rising over +4% to a three-month high, stocks connected to cryptocurrencies climbed as well. Coinbase Global (COIN), MicroStrategy (MSTR), MARA Holdings (MARA), and Riot Platforms (RIOT) reported increases of over +6%.

Axon Enterprises (AXON) led the S&P 500 and Nasdaq 100 with a +14% surge after it raised its full-year revenue guidance. EPAM Systems (EPAM) rose more than +13% following a better-than-expected quarterly earnings report. Other notable gains included AppLovin (APP) and Carvana (CVNA) with increases above +11% each, based on solid financial performances.

However, drug makers faced pressure after news of potential efforts to cut drug costs. Companies such as AstraZeneca Plc (AZN) and Eli Lilly (LLY) closed down more than -3%. Match Group (MTCH) led the decline in the S&P 500, dropping more than -9% after disappointing forecast adjustments.

Fortinet (FTNT) and Arm Holdings (ARM) also suffered declines following less favorable forecasts, while Genpact Ltd (G) dropped over -14% after reducing its revenue forecast.

Upcoming Earnings Reports

Upcoming earnings reports include Starwood Property Trust Inc (STWD) and Ubiquiti Inc (UI).

On the date of publication, Rich Asplund did not have any positions in the securities mentioned in this article. All information is for informational purposes only. For more details, please refer to the Barchart Disclosure Policy
here.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.