U.S. equities experienced a slight downturn on Friday, July 18, following a remarkable day where the S&P 500 and Nasdaq achieved record closes. Investors were focused on upcoming corporate earnings while also keeping an eye on the latest threats regarding U.S. tariffs. Amid these developments, the U.S. dollar weakened, and Treasury yields declined.
According to the University of Michigan's Surveys of Consumers, consumer sentiment in the U.S. showed improvement in July, with inflation expectations declining. However, households remain cautious, perceiving substantial risks of rising price pressures in the future. This sentiment reflects the broader concerns about economic stability.
Another report indicated a significant drop in U.S. single-family homebuilding, reaching an 11-month low in June. High mortgage rates and ongoing economic uncertainty have hindered home purchases, suggesting a contraction in residential investment for the second quarter. This decline in homebuilding further complicates the outlook for the housing market.
On Thursday, positive news regarding U.S. retail sales and jobless claims indicated modest improvements in economic activity, which helped push equities higher. However, Friday's mood shifted as the Financial Times reported that President Donald Trump is advocating for a minimum tariff of 15% to 20% in any agreement with the European Union. Trump remained steadfast despite the EU's latest offer to reduce car tariffs and plans to keep duties at 25% as intended. This development reminded investors that market volatility is likely to continue into August.
Lindsey Bell, Chief Investment Strategist at 248 Ventures, noted the potential for persistent volatility, while Bruce Zaro, Managing Director at Granite Wealth Management, mentioned that many investors are taking profits as the weekend approaches, given the uncertainty surrounding tariffs and the premium valuations following record highs.
According to Zaro, the day's trading activity revolves around option expiration, as investors position themselves ahead of the critical earnings season set to commence in the next few weeks. This period is especially significant as numerous growth and technology companies will report their earnings, fueling investor interest. The fear of missing out on potential gains in megacap stocks is palpable among traders.
In the currency market, the U.S. dollar experienced a slight decline but was still on track for a weekly gain. Investors are weighing the implications of tariffs that may increase inflation pressures while closely monitoring the Federal Reserve's policy, especially as Trump intensifies pressure on Chair Jerome Powell. The dollar index, which compares the greenback to a basket of currencies, fell 0.04% to 98.47. The euro saw a modest increase of 0.24% at $1.1623, although it had reached a session high of $1.1671 earlier.
Against the Japanese yen, the dollar strengthened by 0.1% to 148.75, following reports indicating that Japanese Prime Minister Shigeru Ishiba's coalition faces potential challenges in maintaining its majority in the upcoming election.
In the Treasury market, prices rose, leading to lower yields, after comments from Federal Reserve Governor Christopher Waller suggested a possible rate cut later this month. The benchmark U.S. 10-year note yield decreased by 3.7 basis points to 4.426%, while the 30-year bond yield fell to 4.9947%. The 2-year note yield, closely aligned with Federal Reserve interest rate expectations, also declined by 4.6 basis points.
In commodities, crude oil futures remained steady as mixed economic signals from the U.S. offset concerns that the EU's latest actions regarding the war in Ukraine could impact oil supplies. U.S. crude settled at $67.34 per barrel, down 0.3%, while Brent crude ended the day at $69.28, experiencing a decline of 0.35%.
Gold prices saw an uptick on Friday, driven by a weaker U.S. dollar and ongoing geopolitical and economic uncertainty, which bolstered demand for the safe-haven metal. Spot gold rose 0.41% to $3,352.13 an ounce. Meanwhile, platinum prices eased after reaching their highest level since 2014, reflecting the broader trends in the commodities market.
Reporting by Sinéad Carew in New York, Iain Withers in London, and Stella Qiu in Sydney; Editing by Toby Chopra and Mark Potter.
