US equity indices post back-to-back gains

General market commentary

US benchmark equity indices closed higher on Wednesday, with the Nasdaq Composite rising 2.5% to 16,708.1, the S&P 500 climbing 1.7% to 5,375.9, and the Dow Jones Industrial Average gaining 1.1% to 39,606.6. The rally came amid a perceived softening in US trade policy towards China and President Donald Trump's remarks that he had no intention of firing Federal Reserve Chair Jerome Powell. Trump's comment helped alleviate concerns over Fed independence, while reports suggested that US tariffs on China might decrease, boosting investor sentiment. Growth sectors such as technology and consumer discretionary led the gains, while defensive sectors like consumer staples and the energy sector lagged. Global markets also saw positive movement, with both Asian and European equities closing higher. Despite a slowdown in the US economy, indicated by April's preliminary S&P Global PMI data showing slower expansion, the outlook remained positive, with analysts hopeful that a de-escalation in trade tensions could provide a lift to both global growth and equity markets.

Corporate earnings have been a focal point this week, with approximately 20% of S&P 500 companies reporting first-quarter results. Tesla, one of the Magnificent 7, saw its shares jump despite lower-than-expected profits, as the company maintained its outlook for new product launches, including a lower-cost vehicle and the Cybercab. Meanwhile, S&P 500 earnings are projected to grow by around 7% for Q1, lower than initial expectations but still indicative of healthy growth, especially in sectors like information technology and healthcare. However, tariff uncertainty continues to pose a risk to corporate profit margins, and global growth is expected to slow if tensions persist. With earnings growth of 9.6% projected for 2025, analysts remain cautiously optimistic, with some expecting tariffs to play a role in moderating this outlook. Nonetheless, potential negotiations on tariffs and shifts towards pro-growth policies later in the year could provide support to corporate earnings and equity markets.

Latest market and economic update

• Asian markets were mostly higher on Thursday, with Japan's Nikkei 225 leading gains, up nearly 1%, following reports of renewed U.S.-Japan trade dialogue and optimism over reduced tariffs on automobile components. However, South Korea's KOSPI lagged, dropping 0.6% after GDP data revealed an unexpected contraction in Q1, while broader indices like China's Shanghai Composite and Australia's ASX 200 saw moderate gains, and Hong Kong's Hang Seng declined.

• US equity futures edged higher overnight as investors remained optimistic about potential de-escalation in trade tensions with China and ahead of Alphabet's upcoming earnings report. Wall Street's gains were bolstered by President Trump's comments on reducing tariffs, though uncertainty persisted due to mixed signals on trade negotiations and ongoing concerns over the economy.

• European equity indices rose yesterday, with the DAX up 3.2%, the CAC 40 gaining 2.1%, and the FTSE 100 rising 1%, driven by optimism surrounding a potential easing of the US-China trade war. Key corporate updates included Volvo’s disappointing earnings and a profit dip for Akzo Nobel, while BE Semiconductor posted strong growth driven by AI demand.

• The US dollar weakened on Thursday, slipping to around 99.6 on the dollar index after two days of gains, as investors assessed President Trump's shifting stance on Chinese tariffs and his comments regarding Federal Reserve Chair Jerome Powell. Against the euro, the dollar fell to 1.1341, reflecting its broad declines, including against the British pound and Japanese yen.

• Oil prices inched higher this morning, following steep losses the previous session, as investors weighed potential OPEC+ production hikes in June and tariff negotiations between the US and China. Brent crude rose 0.3% to $66.33 per barrel, while WTI gained 0.2% to $61.78, despite a surprise increase in US crude inventories, which defied analysts’ expectations.

• U.S. President Donald Trump is set to exempt car parts imported from China from certain tariffs, following pressure from industry executives, though the 25% tariff on foreign-made cars and car parts will remain in place. This exemption is intended to help reduce costs for automakers, particularly in the parts supply chain, but the continued rise in tariffs on other automotive imports is expected to keep car prices high and further disrupt global supply chains.

Equities on the move

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

• Lam Research surpassed Wall Street's third-quarter revenue expectations, driven by strong demand for advanced AI chips, with revenue reaching $4.72 billion. Despite challenges from U.S. export controls and tariffs, the company raised its fourth-quarter outlook and reported a profit of $1.04 per share, beating analyst estimates. Shares rallied by 2.6% in after-hours.

• Boeing reported a smaller-than-expected first-quarter loss and higher jet output, boosting shares by 6%, despite challenges from the US-China trade war and tariffs. The company is focusing on ramping up production of its 737 MAX to 38 per month by year-end, with a target for positive free cash flow in the second half of the year.

• ServiceNow exceeded its Q1 2025 guidance, reporting subscription revenues of $3,005 million, a 19% year-on-year increase, and a 22% rise in current remaining performance obligations to $10.31 billion. The company saw strong demand for its AI platform, with 508 customers generating over $5 million in annual contract value, and delivered significant profitability and cash flow, driven by AI-powered efficiencies.

• Chipotle Mexican Grill lowered its annual comparable sales growth forecast to the low single digits due to rising inflation and economic uncertainty, causing its shares to drop 2%. The company reported a 0.4% decline in first-quarter comparable sales and missed revenue expectations, while noting higher input costs from tariffs on imports like avocados and beef are impacting margins.

• GE Vernova reported first-quarter revenue of $8.03 billion, exceeding expectations, driven by strong performance in its power and electrification units, despite tariff impacts on its offshore wind business. The company maintained its annual revenue forecast of $36-37 billion but warned of a $300-$400 million cost impact from tariffs.

• Newmont exceeded Wall Street profit estimates for the first quarter, driven by a 41% rise in the average price of gold, despite an 8.3% decline in production. The company reported adjusted earnings of $1.25 per share, outperforming analysts' expectations, while also addressing cost increases and divesting non-core assets to reduce debt.

• Adidas reported first-quarter sales and profit above expectations, with operating profit rising 82% to €610 million and a margin of 9.9%. The success of popular sneakers like Samba and Gazelle, along with a 13% sales increase, helped the brand gain market share from Nike, as CEO Bjorn Gulden continues its recovery after the Yeezy line's discontinuation.

• Kering's Gucci brand faced a deepening crisis in the first quarter, with a 25% drop in sales and a 14% decline in overall group revenue, as shoppers in key markets like the U.S. and China reduced luxury spending. In response, Kering plans job cuts and store closures, while revamping Gucci with new design leadership, though analysts warn recovery may take time.

• Apple was fined €500 million and Meta €200 million by the European Union for breaching the Digital Markets Act, marking the first penalties under the landmark legislation aimed at curbing Big Tech’s power. The fines, which could increase tensions with the U.S., follow an investigation into their compliance with the DMA, with both companies expressing intent to challenge the rulings.

• Tesla's sales in Europe dropped sharply in March, with new vehicle registrations falling to 28,502 units from 39,684 a year earlier, marking a 37.2% decline in Q1. The electric vehicle maker faces ongoing challenges, including a sales boycott, heightened competition, trade tariffs, and weaker-than-expected earnings for the first quarter.

• Nintendo shares surged nearly 6% this morning after the company revealed it had received over 2.2 million lottery applications in Japan for its upcoming Switch 2 console, highlighting strong demand ahead of its June 5 release. The company stated it would be unable to fulfill all orders via the lottery system, and delayed U.S. pre-orders earlier this month to assess the impact of U.S. tariffs.

• Eli Lilly has filed lawsuits against four compounders for selling unapproved tirzepatide products, following a U.S. court ruling that blocked pharmacies from replicating its weight-loss and diabetes medications. The lawsuits accuse the companies of selling unsafe versions of the drug without clinical evidence, as Lilly seeks to safeguard its treatments and ensure patient access.

• Piper Sandler downgraded Oracle to Neutral from Overweight, citing concerns over margin pressure and rising capital expenditures as the company invests heavily in its cloud infrastructure. Despite strong momentum in AI workloads, the firm warned that Oracle’s increased backlog and capital spending, expected to rise over 50% in fiscal year 2026, may limit near-term cash flow, prompting a reduction in its price target to $130.

• Bernstein upgraded Cava Group to "Outperform," citing the recent selloff as improving the shares' risk-reward profile, while the company remains well-positioned for growth despite economic uncertainty. Despite a 30% drop in shares this year, Bernstein maintains a $115 price target, highlighting strong fundamentals, healthy margins, and growth potential.

• Baird upgraded Lockheed Martin to Outperform from Neutral, citing strong global missile demand, reduced risks, and positive management commentary after solid first-quarter results. The firm expects significant growth in Lockheed’s missile portfolio and maintained its 2025 guidance, while raising its EPS estimate and price target to $540 due to strong free cash flow and international demand.

• Morgan Stanley initiated coverage of Duolingo with an "Overweight" rating and a price target of $435, citing rapid user growth, strong margin expansion, and upside from generative AI. The firm forecasts a 26% compound annual revenue growth rate over the next five years, driven by Duolingo’s gamified learning model and the success of its AI-powered Max subscription tier.

• Barclays and Redburn Atlantic have issued cautious outlooks for the oil and gas sector, downgrading equities due to falling oil prices and uncertain macroeconomic conditions. Both firms lowered their oil price forecasts, with Barclays cutting its WTI oil price estimates and downgrading Chevron and Murphy Oil, while Redburn forecasted a Brent crude decline and downgraded Equinor and Chevron.

Upcoming data and events

Today’s economic releases in the US include durable goods orders, initial jobless claims, and existing home sales, which could significantly impact investor sentiment. Meanwhile, the earnings season continues with major reports expected from tech giants Google and Intel, as well as telecommunications leader T-Mobile.

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