Stocks were mixed on Tuesday as Wall Street digested key inflation data, bank earnings reports, and developments in the ongoing trade standoff between the US and China. The Nasdaq Composite rose 0.6%, bolstered by a strong performance from Nvidia (NVDA). At the same time, the S&P 500 and Dow Jones Industrial Average slipped slightly, weighed down by concerns about inflation and bank earnings results.
The S&P 500 (GSPC) fell 0.1%, while the Dow Jones Industrial Average (DJI) dropped 0.7%, losing over 250 points. The tech-heavy Nasdaq (IXIC) gained 0.6%, largely driven by Nvidia's surge. Despite the mixed market performance, the major indices are taking a breather after a streak of record highs, as inflation and earnings season set the tone for the week.
Market Movers:
- Nvidia (NVDA): +3.97%: Nvidia rose after the company announced plans to resume the sale of its AI chips to China, a significant shift in trade policy. The Trump administration’s decision to approve these sales boosted Nvidia, given China’s key role as one of its largest markets. This news pushed Nvidia's stock toward a fresh record close, continuing its strong performance this year.
- Tesla (TSLA): -0.94%: Tesla was down less than 1% following the launch of its first showroom in India, despite the country's high import tariffs on electric vehicles. The initial launch, which includes the Model Y, is seen as a modest step into one of the world's largest growth markets. However, Tesla’s stock is facing pressure due to the high price point in India, resulting from tariffs.
- JPMorgan (JPM): -1.0%: Shares fell after the bank reported its earnings, which included a boost from deal-making activity but did not meet expectations for net interest income growth. The bank's performance highlighted broader concerns about the profitability outlook for major banks as interest rate uncertainty lingers.
- Citi (C): +3.22%: Citi climbed after reporting better-than-expected earnings. The bank’s results were seen as a positive sign for the financial sector, boosting investor confidence in the sector's ability to navigate through rising inflation and fluctuating interest rates.
Inflation Data and the Federal Reserve’s Role
The US Consumer Price Index (CPI) for June showed an increase of 2.7% year-over-year, a rise from May’s 2.4%. The month-over-month increase was 0.3%, in line with expectations, signaling that inflation pressures are still present.
The data fueled concerns about the potential for persistent inflation, which could cause the Federal Reserve to reconsider its policy stance. Although core inflation (which excludes food and energy) remained in line with expectations, rising yields on government bonds suggest that markets anticipate tighter monetary conditions in the future. The 10-year Treasury yield rose to nearly 4.5%, and the 30-year yield crossed the 5% mark, which may pressure stock valuations in the short term.
With the Federal Reserve meeting in a few weeks, investors are focusing on how these inflationary trends will influence the central bank’s decision on interest rates. The market is currently pricing in a high probability that the Fed will hold rates steady in its upcoming meeting, but the evolving inflation narrative could change that outlook.
Bank Earnings and Their Market Impact
Earnings season officially kicked off this week, and major banks like JPMorgan and Wells Fargo released their quarterly results. JPMorgan's earnings showed strength in trading and investment banking, but the bank cut its forecast for net interest income. This weighed on its stock and broader financial sentiment
Citi, on the other hand, exceeded expectations, boosting investor optimism in the financial sector. The overall bank earnings reports will be critical in assessing the health of the financial sector, especially in the face of inflationary pressures and rising interest rates. With several large banks yet to report, the next few days will be crucial in determining whether the sector can maintain its upward momentum.
Looking Ahead
As we move into the second half of the year, inflation data and the Fed’s policy response will remain top of mind for investors. With the CPI report showing higher-than-expected price increases, markets will be looking closely at how the Fed responds in its upcoming meeting. If inflationary pressures persist, the central bank may decide to adopt a more hawkish stance, which could dampen market sentiment.
Additionally, the resumption of AI chip sales to China could signal a thaw in US-China trade tensions, benefiting tech stocks, particularly Nvidia. However, trade tensions between the US and other partners, such as Canada, could continue to add volatility to the market in the near term.