Stock market rally stalls as Wall Street digests US-EU trade deal

Yahoo

3 days ago

US stocks were mixed Monday and the S&P 500 was on the verge of snapping a five-day win streak as investors digested the announcement of a trade deal between Washington and Brussels.
Stocks fluctuated between gains and losses Monday afternoon after President Donald Trump and President of the European Commission Ursula von der Leyen on Sunday announced a framework for a US-EU trade deal.
The Dow fell 100 points, or 0.2%. The broader S&P 500 edged lower by 0.07%. The tech-heavy Nasdaq Composite gained 0.25%.
While markets initially cheered the US-EU trade deal, stocks dipped lower on Monday, putting a pause on a recent hot streak.
The Dow had traded near record-high territory earlier. The index needs a gain of 0.39% to surpass its previous intraday record of 45,073.63, set on December 4. The blue-chip index needs to finish the day with a gain of about 115 points, or 0.25%, to close at a record high, which would be its first this year.
While the S&P 500 and Nasdaq have clinched numerous records this month, the Dow is still searching for its first record high since early December.
Trump and von der Leyen met in Scotland and announced the deal, which includes a 15% tariff on US imports of EU goods. The announcement was in line with investors' expectations and initially perceived to be better for markets than Trump's previous threat of a 30% tariff.
'The EU-US trade deal removes a significant layer of uncertainty from markets,' Paul Stanley, chief investment officer at Granite Bay Wealth Management, said in an email.
'While a 15% baseline tariff remains in effect, and still has the potential to increase prices for goods across the board, falling uncertainty is positive for markets and this deal is a signal to markets that we can soon move on from this issue and focus more on fundamentals,' Stanley said.
Stocks in Europe had a mixed day. Europe's benchmark Stoxx 600 index on Monday hit its highest level in four months before dropping 0.2%. Meanwhile, Germany's DAX index initially rose before turning into the red and sliding 1%.
The US dollar index, which measures the dollar's strength against six major foreign currencies, gained 1%. The euro slid 1.4% against the dollar. Trump's tariffs are expected to hit the EU's economic growth, according to forecasts by Capital Economics.
Deciphering Trump's tariffs
Stocks were coming off a strong week as investors had welcomed progress on trade negotiations. The S&P 500 on Monday tried to rise further into record territory after notching five consecutive record highs last week.
Stock futures on Sunday evening jumped higher, albeit modestly, after the US-EU trade deal was announced as Wall Street was relieved that Trump did not push forward with even higher tariffs. Some investors had been fearing a worst-case scenario of dramatically high tariffs that could have disrupted supply chains and dealt a firm blow to economic growth.
But some investors have also called Trump's bluff on his trade war, betting the president will avoid enormous tariffs that could derail the economy.
'Ultimately, this is good news from a financial markets perspective as it reduces uncertainty further still ahead of the 1st August, which is now looking like an insignificant date,' Derek Halpenny, head of research for global markets at MUFG, said in a note.
Jack Allen-Reynolds, deputy chief euro-zone economist at Capital Economics, said in a note that while the trade deal is a positive development, 'uncertainty is likely to remain high for the foreseeable future.'
'This will reduce uncertainty in the near term and has understandably been greeted positively by the markets this morning,' Allen-Reynolds said. 'But the fine details of the deal may not yet have been agreed. And President Trump could still change his mind even after the deal has been finalized and signed.'
A head-spinning week for markets
Investors are bracing for a jam-packed week for markets. In addition to the closely watched monthly jobs report, there's a slew of corporate earnings, including results for four of the seven companies in the so-called Magnificent Seven tech stocks: Meta and Microsoft on Wednesday and then Amazon and Apple on Thursday.
Companies that account for 37% of the S&P 500's market weight will report their second-quarter earnings this week, according to analysts at Deutsche Bank, signifying its importance for Wall Street.
The Federal Reserve on Wednesday is set to make a decision on interest rates. Global investors will also be keeping an eye on the Bank of Canada, set to announce a decision on rates the same day; as well as the Bank of Japan, which is set to make an announcement on interest rates on Thursday.
'The Fed is likely to stay in wait-and-see mode in July, with an emphasis on data dependence,' analysts at Bank of America said in a note.
Jan Hatzius, chief economist at Goldman Sachs, said he expects the Fed to hold rates steady at this meeting before beginning a rate-cutting cycle that includes quarter-point cuts in September, October and December, followed by two more in 2026.
Commerce Department data due Wednesday will showcase the initial reading of how much the economy grew (or contracted) in the second quarter. The US economy in the first quarter contracted for the first time in years.
Investors earlier this year were concerned about the prospects of the US economy sliding into recession due to the impact of tariffs. A recession is often defined as two consecutive quarters of the economy contracting.
Representatives from Washington and Beijing are meeting in Sweden this week to discuss trade.
Ed Yardeni, president of Yardeni Research, said in a note that he expects economic data and earnings to provide a boost to stocks, regardless of trade deal news.
'The financial markets anticipated the latest deal, and the reaction to it is likely to be relatively muted this week,' Yardeni said. 'More important will be the slew of labor market indicators this week, culminating on Friday with the release of July's employment report.'
Yardeni said he thinks the labor market is doing well, and he expects stocks to continue climbing higher if the big tech companies post earnings results that exceed expectations.