US equities lower on heightened trade tension

General market commentary

Equity markets closed modestly lower on Tuesday, bringing an end to a six-day rally in the S&P 500, which had been supported by easing US-China trade tensions. The S&P 500 and Nasdaq Composite each slipped 0.4%, while the Dow Jones fell 0.3%. Sector performance was broadly defensive, with utilities and healthcare leading gains and energy underperforming. Markets were relatively quiet on the economic data front, although bond yields edged higher, with the 10-year US Treasury yield rising to 4.49%. Fed officials offered a cautious tone, with St. Louis Fed President Alberto Musalem highlighting that tariffs may dampen economic activity and soften the labour market. Meanwhile, Atlanta Fed President Raphael Bostic reiterated his support for only one rate cut in 2025, noting that tariffs have had a larger-than-expected impact.

Corporate earnings remained in focus as the reporting season winds down, with around 93% of S&P 500 companies having reported. First-quarter earnings growth is on track to reach 13%, well ahead of earlier forecasts. Retailers are now in the spotlight, with Home Depot posting stronger-than-expected sales but slightly weaker earnings. Nevertheless, management reaffirmed full-year guidance and indicated no plans to raise prices due to tariffs. Other notable corporate news included Airbnb, which dropped 3.3% after the Spanish government ordered it to block over 65,000 listings for alleged regulatory breaches, and Pfizer, which rose 2.3% after securing exclusive global rights (excluding China) to a cancer treatment candidate in a deal worth up to $6.05 billion. Other equity markets traded broadly higher, supported by a rebound in eurozone consumer confidence and interest rate cuts in China. Despite some lingering uncertainty, the market backdrop continues to support equity valuations, with US mid- and small-cap shares, as well as non-US equities, showing robust year-to-date performance.

Latest market and economic update

Asian markets traded mixed on Wednesday, with Japanese shares dipping on weak trade data linked to U.S. tariffs, while Australian equities advanced on commodity gains and a dovish signal from the Reserve Bank. Chinese equities rose following further rate cuts, though gains were capped by renewed tensions with the U.S. over chip restrictions.

US shares futures fell modestly amid growing concerns over the federal budget and widening deficit, weighing on market sentiment. Meanwhile, global tensions escalated after China accused the US of undermining trade talks, Fed officials signalled a prolonged rate pause, and Moderna gained on updated vaccine booster guidance.

European shares rose strongly, with the STOXX 600 gaining 0.7% and the STOXX 50 up 0.4%, supported by heavyweight pharmaceutical firms and a positive outlook for increased government spending in Europe. Consumer discretionary and banking sectors also advanced, led by LVMH, BMW, BBVA, and UniCredit, while Vodafone jumped 5.7% following a €2 billion share buyback announcement.

The US dollar index dropped to 99.7 on Wednesday, its third consecutive decline and nearing a two-week low amid concerns over the US economic and fiscal outlook. This followed setbacks to tax reform and Moody’s downgrade of the US credit rating. Meanwhile, the euro gained, with EUR/USD trading at 1.1329 as investors weighed impacts of US trade policies and upcoming meetings.

Oil prices rose by 1.5% this morning amid heightened geopolitical tensions, following reports that Israel is preparing for a potential strike on Iranian nuclear facilities, raising concerns over regional supply disruptions. The gains were further supported by a surprise increase in U.S. crude inventories, although a drop in gasoline and distillate stocks pointed to a tightening market.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Nvidia CEO Jensen Huang said U.S. export restrictions on AI chips to China had failed, instead accelerating development of local alternatives and cutting Nvidia’s market share in the country from 95% to 50%. Speaking at Computex, Huang criticised the controls for energising Chinese firms, particularly Huawei, while Nvidia adapts by developing compliant chips and investing in a new R&D centre in Shanghai.

At its I/O conference, Google unveiled major AI developments, including a $249.99/month “AI Ultra Plan” and expanded access to “AI Mode” in Search, reaffirming its leadership in generative AI with over 400 million monthly Gemini users. Despite rising AI investment and innovation, Alphabet shares dipped amid concerns over declining search use, legal pressure, and shifting user behaviour towards AI chatbots.

Elon Musk said Tesla is recovering from recent sales declines and reaffirmed his commitment to the company, despite political distractions and controversy over his pay and role in OpenAI. He also revealed plans to launch a self-driving ride-hailing service in Austin next month, with ambitions to scale up to one million robotaxis by late 2026, posing a potential threat to rivals like Uber and Lyft.

Infineon announced a partnership with Nvidia to develop high-voltage direct current power delivery systems for AI data centres, aiming to reduce energy losses caused by current alternating current distribution methods. This centralised approach is expected to optimise energy consumption, enhance performance, and support sustainability for next-generation AI workloads.

Palo Alto Networks reported a 15% rise in revenue to $2.29 billion for its fiscal third quarter, driven by growth in subscription and product sales, though profit fell to $262.1 million due to increased costs. The company raised its full-year adjusted earnings forecast and provided optimistic guidance for the next quarter, but shares fell by almost 4% in after-hours trading.

Home Depot exceeded revenue expectations in Q1 2025 with $39.86 billion, a 9.4% year-on-year rise, but missed earnings forecasts with adjusted EPS of $3.56. Despite a slight drop in comparable sales and external challenges like weather and exchange rates, the retailer reaffirmed its full-year outlook and plans modest expansion, prompting a positive market reaction.

Wells Fargo initiated coverage of SAP with an Overweight rating and a €345 price target, highlighting the company’s strong cloud transition and dominant ERP position as key growth drivers amid macro uncertainty. The bank expects SAP’s operating margins to exceed 30% by 2027, underpinned by its shift to cloud-first solutions and solid free cash flow, projecting a 30% upside from current levels.

Goldman Sachs downgraded Allianz to “neutral” from “buy” following a 22% share price rise and stretched valuation, with limited near-term upside despite strong operational performance and achievable targets. The broker also cut its 2025 EPS estimates by 8% due to higher loss ratios and weaker asset management, lowering the 12-month price target to €374 from €393.

Evercore ISI maintained its Outperform rating on Dell, praising its strong position in enterprise AI following the launch of new AI servers and a mobile workstation with an enterprise-grade NPU. The firm highlighted Dell’s deep expertise in AI systems, positioning it as a key provider for enterprises increasingly shifting AI workloads on-premise for better cost efficiency.

Upcoming data and events

Today's market focus will be on the EIA Crude Oil Inventories report and speeches from Federal Reserve officials. Key earnings reports from retail giants Target and Lowe’s, medical technology leader Medtronic, off-price retailer TJX Companies, and apparel maker VF Corporation are expected to offer insights into consumer spending, healthcare trends, and the broader economic outlook.

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