Editor
Stocks hover near highs, but rate outlook and tariffs stir caution.
The bond market faced another setback on Thursday, as new evidence of U.S. labor strength dampened investor hopes for interest rate cuts this year. Treasury yields ticked up for the second consecutive day after weekly jobless claims dropped to their lowest point since April — a statistic that’s tough to overlook as we approach next week’s Federal Reserve meeting.
While stocks continued their gradual ascent toward all-time highs, there was an underlying sense of tension. Investors are navigating a tricky mix of positive corporate earnings, geopolitical uncertainty, and fresh questions about when — or if — the Fed will loosen monetary policy.
Jobless Claims Fuel Yield Climb
The 10-year U.S. Treasury yield ticked up by two basis points, reaching 4.40%, as unemployment claims dropped for the sixth week in a row — marking the longest streak since 2022. Traders have adjusted their expectations for Federal Reserve rate cuts, now anticipating fewer than two reductions by the end of the year.
“This kind of labor resilience complicates the Fed’s decision-making,” explained Dana Caldwell, chief macro strategist at Helix Research. “If the labor market is holding steady, even just a little, the central bank doesn’t have much reason to cut rates.”
That perspective was shared on Wall Street trading floors. “We’re not seeing many signs of significant issues in the labor market,” pointed out Chris Larkin, managing director at E*Trade from Morgan Stanley. “And if that situation stays the same, the Fed has one less reason to step in.”
Stocks Inch Higher, But Risks Loom
Despite some jitters in the bond market, the S&P 500 managed to creep up by 0.2% by midafternoon in New York, buoyed by strong earnings from Alphabet, which saw a 0.7% increase. On the flip side, Tesla took a nosedive, dropping over 9% after CEO Elon Musk shared a grim outlook and warned of “very difficult” times ahead.
The Nasdaq 100 rose by 0.3%, while the Dow dipped by 0.5%. Overall, market breadth looks solid: the NYSE advance-decline line — a measure of how many stocks are gaining compared to those that are losing — reached new highs, indicating that the rally is expanding beyond just the big players.
However, some experts are advising caution.
“The real risk isn’t the rally itself — it’s the absence of hedging,” noted Andrew Tyler, head of global market intelligence at JPMorgan. “Even the bears are starting to relent, and that’s when you really need to keep your guard up.”
Margin Debt Surges, Echoes of 2021?
One major concern is the noticeable increase in margin debt — that’s the money investors are borrowing to purchase stocks. Deutsche Bank’s credit strategists point out that this trend is nearing levels we last saw during the speculative excitement of 2021.
“This kind of leverage can magnify both profits and losses,” explained Caroline Nguyen, a senior credit analyst at the bank. “If market sentiment shifts even a little, it could trigger a rapid sell-off.”
Traders at Goldman Sachs and Citadel Securities are reportedly advising their clients to think about securing inexpensive hedges now, especially with geopolitical tensions and trade issues looming on the horizon.
Trump Tariffs Cloud Trade Outlook
Former President Donald Trump, who still wields considerable influence over the Republican Party and its policy directions, hinted on Thursday that he wouldn’t accept tariff rates lower than 15%. This suggests that any new tariffs could be tougher than what the markets are currently expecting. His remarks came just ahead of the August 1 deadline for proposed reciprocal trade rates.
“There’s a sense of complacency surrounding tariffs,” cautioned Chi Lo, a senior strategist at BNP Paribas Asset Management. “It seems like the markets are overlooking the possibility of a significant trade backlash.”
In other news, European bonds took a hit as well, with German 10-year yields climbing six basis points after policymakers indicated that easing measures might be slower than anticipated. Meanwhile, the euro and dollar remained relatively stable.
Corporate Moves: Earnings and Warnings
The earnings landscape is buzzing with activity. Here are some key takeaways:
– Alphabet exceeded expectations thanks to a boost from AI-driven sales, but they also hinted at a significant increase in capital expenditures.
– IBM fell short of the mark, with disappointing software sales weighing down their stock.
– Microsoft raised alarms about a ransomware threat linked to a Chinese hacking group that’s been targeting its SharePoint servers.
– Tesla cautioned that “challenging quarters” are on the horizon as their profitability takes a hit.
– UnitedHealth has confirmed that the Department of Justice is investigating its Medicare billing practices.
– Union Pacific is deep in merger discussions with Norfolk Southern, which could lead to the formation of the largest rail operator in North America.
– Chipotle has lowered its full-year forecast for the second time, pointing to weak consumer demand despite their promotional efforts.
– Luxury powerhouse LVMH also reported a slowdown in sales, indicating that high-end shoppers are feeling the effects of post-pandemic fatigue.
Commodities and Currency Moves
Crude oil (WTI) saw a slight uptick, reaching $65.48 a barrel, while gold took a dip, falling 0.6% to $3,366.73 an ounce. The Bloomberg Dollar Spot Index climbed by 0.2%, and the Japanese yen continued its decline, now sitting at 146.87 per dollar.
In the crypto world, Bitcoin edged up to $118,582, and Ethereum made a notable jump of over 3% — a rare glimmer of positivity on an otherwise cautious day.
The Road Ahead
Despite the recent selloff in bonds, a lot of investors are still holding onto the equity rally — at least for now. With the Fed meeting coming up next week, everyone is keeping a close watch on the labor data and any signs of changes in policy.
“If the jobs numbers remain strong, the Fed can afford to be patient,” Caldwell noted. “But if anything goes wrong — whether it’s in employment, credit, or geopolitics — things can shift quickly.”
In the meantime, the markets are balancing on a fragile layer of optimism.
