The record-breaking rally in US equities continued on Wednesday as President Donald Trump reached a trade deal with Japan and investors geared up for the first round of big tech earnings later today.
The S&P 500 Index advanced 0.4% at 9:40 a.m. in New York, continuing to build on a rally that set a fresh record at the beginning of the week. The tech-heavy Nasdaq 100 Index was mostly unchanged, with chipmakers weighing on the benchmark.
“Markets are digesting the Asian euphoria from the Japan Deal, but a lot of crosscurrents under the surface are being watched,” said JonesTrading’s Dave Lutz, highlighting the momentum rotation into value as well as renewed meme-like surges in high short-interest stocks.
Trump’s trade deal with Japan will impose 15% tariffs on imports including automobiles, while creating a $550 billion fund to make investments in the US. As a result of the agreement, which came after Trump brokered breakthroughs in a Oval Office meeting on Tuesday, will spare Japan from a 25% tariff that was set to kick in next week.
“They got the 15% rate because they were willing to provide this innovative financing mechanism,” Treasury Secretary Scott Bessent said in an interview with Bloomberg Television, when asked whether other trading partners could get a similar reciprocal levy.
There is still much to do on the trade front for Trump though. The European Union is planning to quickly hit the US with 30% tariffs on some €100 billion worth of goods in the event no deal is reached between the two sides and if Trump follows through with his threat to impose that rate on the bloc’s exports.
Goldman Sachs Group Inc. economists expect the US baseline “reciprocal” tariff rate to rise from 10% to 15%, with a 50% levy on copper and critical minerals. That threatens to fuel inflation and weigh on economic growth.
Big Tech Focus
Outside of trade developments, earnings season continued with a batch of mixed results. Capital One Financial Corp. advanced after the credit-card company reported results analysts viewed as promising.
Texas Instruments Inc., a key chipmaker for producers of cars and factory equipment, stoked fears that a tariff-fueled surge in demand will be short-lived. An underwhelming forecast paired with a conference call that struggled to win over analysts caused shares to slump. Meanwhile, peers including Analog Devices Inc. and ON Semiconductor Corp. also fell.
Attention now turns toward the first set of Magnificent Seven earnings this season, with Google parent Alphabet Inc. and Tesla Inc. set to report after the closing bell Wednesday.
“This could create some fireworks,” said Miller Tabak’s Matt Maley, adding that it could cause more movement than the market has seen for much of the past two to three weeks. “This does not mean that any renewed fireworks will cause the market to decline. It could easily create even more upside movement in the broad market.”
Alphabet has just turned positive for the year ahead of results that are expected to bolster sentiment around its position in artificial intelligence. Meanwhile, the core car-making business of Tesla faces a deteriorating outlook, providing a challenge of Elon Musk’s ability to lift the stock price with his vision of a self-driving future.
“Coming in the wake of yesterday’s earnings from General Motors that saw the company announce a tariff hit of more than $1 billion, traders will be watching very closely to see just how painful things will be for Elon Musk amid rising input costs, higher tariffs, and the removal of EV credits,” said Joshua Mahony, chief market analyst at Scope Markets.
JPMorgan Chase & Co. warned of a “growing air of complacency” as the rally in equities coincides with an acceleration in earnings downgrades.
“Either sell-side analysts are about to start a new round of upward revisions or the market is at risk of suffering a period of increased volatility and draw-downs,” quantitative strategists at the bank led by Khuram Chaudhry said. “Something has to give.”
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