Key Takeaways
- Markets fell Tuesday, but positive tariff news lifted futures overnight
- U.S.–China talks may influence volatility and investor positioning ahead
- Strong earnings from Disney, AMD; Fed decision and India tensions loom
All four major market indices closed lower on Tuesday. The S&P 500 lost 0.8%. The Nasdaq Composite fell 0.9% and the Russell 2000 and Dow Jones Industrial Average both fell 1% and 1.1%, respectively. However, after the market closed, positive news on tariffs sent futures higher, which is where they remain in the premarket.
The big story from Tuesday actually took place after the market closed. Trade Representative Greer and Treasury Secretary Bessent are headed to Switzerland where they will meet with their Chinese counterparts. The aim of the talks is a de-escalation of the current trade war. The U.S. and Chinese parties will meet on Saturday and Sunday to begin discussions for future trade war negotiations. While this is essentially being promoted as a meeting to set up another meeting, the outcome of the weekend talks will be closely watched. Markets will be looking for signs the trade war and tariffs will soon come down, but it’s also possible both parties walk away without any sort of agreement. As we near Friday, I’ll be watching to see how the market positions itself heading into the talks.
We had a number of earnings reports overnight beginning with Advanced Micro Devices, who not only beat expectations but offered a rather strong outlook despite a potential $800 million impact from tariffs. Shares of the chipmaker are higher by 2% in premarket. Disney stock is also higher by 6% in premarket trading after beating on both the top and bottom lines. The company reported surprisingly strong subscriber growth for its streaming platform and upped revenue guidance. At the other end of the spectrum, both Uber and Super Micro Computer missed on their earnings. Uber fell short of ride estimates and that stock is lower by 4%. Super Micro Computer missed on earnings and offered a weak outlook. That stock is lower by nearly 6% in the premarket.
Another company in the news this morning is Alphabet. Following a ruling against the company for anti-trust violations, the company has been waiting for the judge to provide a remedy in the case. The Department of Justice recommended the company spin off two ad businesses. I find this noteworthy because there has been talk of Google being forced to divest itself from its Chrome browser. Losing the ad companies seems like a less aggressive penalty and could set the tone for other pending cases against companies such as Amazon. Shares of Alphabet aren’t up on the news, but they aren’t down either.
The headline event for today will be the Federal Reserve Open Market Committee (FOMC) announcement, due out at noon CT. There is near certainty that interest rates will be left unchanged. The market is more concerned with what Fed Chair Powell has to say in his post meeting press conference. As we wade deeper into the trade war, more data points are coming in and I expect the Fed will have at least some preliminary idea as to what the impact will be.
One other story not getting a ton of attention is the situation in India and Pakistan. On Tuesday, India launched attacks inside of Pakistan in retaliation for an April attack inside of Indian-controlled Kashmir that killed 26. There are a couple things about this story worth noting. First, both India and Pakistan have nuclear weapons and there have been skirmishes in the past, but this is the first time India struck inside Pakistan. Second, companies such as Apple have moved a significant portion of their manufacturing capabilities from China to India recently. Aside from the obvious humanitarian toll any escalation of hostilities would bring about, there would also likely be market-related consequences. Therefore, while this is one of those geopolitical situations we don’t hear much about until there is something big worth hearing about, it is something to monitor.
For today, I’m continuing to monitor volatility. The VIX is just below 25 and despite the rally since hitting April lows, volatility remains high. I expect it to remain elevated and possibly even increase ahead of this weekend’s meeting between the U.S. and China. At the same time, I, along with everyone else, am very interested in what Jay Powell has to say about the Fed’s outlook for the overall economy. As always, I would stick with your investing plans and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.