The S&P 500 Index ended Monday’s trading session with a modest increase of 0.41%, while the Dow Jones Industrial Average rose slightly by 0.08%. The Nasdaq 100, showcasing stronger momentum, closed up 0.71%. Futures for June E-mini S&P appeared optimistic, showing an upward movement of 0.60%, while June E-mini Nasdaq futures advanced by 0.80%. Initial losses in stock indexes were reversed, largely driven by a surge in semiconductor stocks and a significant rally in energy producers influenced by rising crude oil prices.
On Monday, West Texas Intermediate (WTI) crude prices surged over 2%, reaching a one-and-a-half-week high, which fueled investor sentiment across energy sectors. This upward movement also extended to U.S. steel and aluminum producers following an unexpected announcement from President Trump, who disclosed plans to double tariffs on these imports from 25% to 50%. As a result, shares of major steel and aluminum producers surged, indicating heightened market optimism in these industries.
Despite these gains, the market opened under pressure, attributed to escalating trade tensions between the United States and China. The Ministry of Commerce in China issued strong statements condemning the U.S. for what they termed “discriminatory restrictions,” which included AI chip export controls and limitations on chip design software sales. Moreover, the revocation of Chinese student visas added fuel to the fire, prompting the Chinese government to declare intentions to protect their economic interests actively. The timing of this escalation is particularly critical, as President Trump had expressed intentions to engage in discussions with Chinese President Xi Jinping this week, aiming for a potential trade truce.
Economic indicators later in the day added to a bearish outlook in the U.S. labor market context. Data revealed that U.S. manufacturing activity unexpectedly contracted in April, marking the steepest decline in six months. Construction spending also indicated weakness, with a surprising 0.4% month-on-month drop, diverging from expectations of a slight increase.
The rising bond yields further exacerbated stock market concerns. The yield on the 10-year Treasury note rose by 6 basis points to 4.46%, as escalating trade tensions sparked a broader asset selloff, affecting Treasuries along with dollar-denominated assets. The surge in crude prices to a one-and-a-half-week peak additionally stoked inflation expectations, raising further concerns regarding Federal Reserve monetary policy adjustments.
Federal Reserve officials made comments that influenced market sentiments, appearing to offer both caution and support. Fed Governor Christopher Waller suggested that if tariffs stabilize near lower levels and inflation trends continue positively towards the Fed’s 2% target, then rate cuts could be on the horizon later in the year. Meanwhile, Chicago Fed President Austan Goolsbee indicated a path toward interest rate cuts, contingent upon resolving trade policy uncertainties. Conversely, Dallas Fed President Lorie Logan emphasized the Fed’s patience, suggesting that both sides of its dual mandate appear balanced, allowing time for observation before taking further actions.
Market analysts currently assess the probability of a 25 basis point rate cut at the upcoming Federal Open Market Committee (FOMC) meeting scheduled for June 17-18 at approximately 5%. Investors remain vigilant this week, focusing on forthcoming trade developments and tariff updates that may sway market trends.
Economic data for the upcoming week will be closely monitored, with projections indicating a potential decline in April factory orders by 3.2% month-on-month. The April JOLTS report is anticipated to show a reduction of 92,000 job openings, bringing the total to approximately 7.1 million. Meanwhile, expectations for the May ADP employment change indicate an increase of 110,000 jobs, coupled with a slight uptick to 52.1 in the May ISM services index. A decrease of initial unemployment claims by 5,000 to 235,000 is also anticipated. Financial forecasts predict a rise of 125,000 jobs in May’s nonfarm payrolls, with the unemployment rate expected to hold steady at 4.2%. Average hourly earnings are forecasted to increase by 0.3% month-on-month and 3.7% year-on-year.
Overseas, stock markets faced declines on Monday, with the Euro Stoxx 50 index falling to a one-week low, closing with a loss of 0.21%. Chinese markets were closed for the Dragon Boat Festival holiday, while Japan’s Nikkei Stock 225 index decreased by 1.30%.
In the realm of U.S. Treasury Notes, September 10-year T-notes closed down by 9 ticks. The outlook for T-notes remained negative amidst the backdrop of rising trade tensions, which led to a broader sell-off of dollar assets. The jump in WTI crude prices and its influence on inflation expectations were also pressing issues for bond traders.
However, losses in T-notes were somewhat mitigated by dovish comments from Fed officials. Waller’s scenario of potential rate cuts later this year reassured some investors, while Goolsbee emphasized that the Fed could follow suit if trade uncertainties diminish. Additionally, weaker-than-expected manufacturing data and construction spending offered underlying support for T-notes.
Across Europe, government bond yields concluded the day higher, reflecting broader economic sentiments. The yield for 10-year German bunds increased by 2.4 basis points to 2.524%, while the 10-year UK gilt yield rose by 2.1 basis points to 4.667%. Notably, the German May S&P manufacturing PMI was revised downwards, reflecting a degree of economic contraction.
In the U.S. stock market, technology stocks significantly contributed to the market rebounding. Notable chip manufacturers such as Micron Technology and Advanced Micro Devices saw increases in their share prices, with advances exceeding 4% and 3%, respectively. The stock of Broadcom and others in the semiconductor industry also rallied, providing essential support to market indices.
The announcement regarding tariffs on steel and aluminum imports generated substantial gains for U.S. steel producers like Cleveland-Cliffs and Century Aluminum, whose stock prices soared by more than 20%. Other producers, including Steel Dynamics and Nucor, experienced substantial increases exceeding 10%. Rising crude oil prices also positively affected energy sectors, with companies like Devon Energy and Diamondback Energy seeing notable price increases.
Gold mining stocks benefitted from a rise in gold prices, which surged over 2% to a three-week high. Shares of Gold Fields and AngloGold Ashanti surged substantially, reflecting favorable conditions for gold investments.
The approval of a new COVID-19 vaccine for older adults led to a rise in shares of Moderna, while Vera Therapeutics saw explosive growth after their drug showed positive results in clinical trials. However, other technology firms dependent on government contracts faced declines, attributed to potential funding cuts, affecting companies like Leidos Holdings and CDW Corporation.
Car manufacturers retreated, as the potential impact of increased tariffs on steel and aluminum raised concerns over profit margins, leading to declines for automotive giants including Ford and General Motors.
Earnings announcements continue to shape market perceptions moving forward, with various companies preparing for critical earnings reports in the coming weeks.
Market participants remain acutely aware of the interplay between trade policies and monetary regulations as they navigate through the evolving economic landscape. Investors will be particularly attentive to forthcoming economic indicators, geopolitical developments, and Federal Reserve commentary as they assess potential impacts on market performance.