Tariff Talks Continue as Mega-Cap Earnings Loom

Published as of: July 21, 2025, 9:17 a.m. ET

(Monday market open) The week began with stocks climbing on firm earnings results as the clock ticks toward President Trump's August 1 tariff deadline. "Positively, tensions between the U.S. and China appear to have dissipated," said Michelle Gibley, director of international research at the Schwab Center for Financial Research. "The risk is that market volatility could return if large trade partners such as the EU and Japan do see higher rates."

It's a sandwich week for data between last week's inflation and next week's nonfarm payrolls. June Leading Indicators from the Conference Board are due soon after the open. Earnings, however, are front and center with Alphabet (GOOGL) and Tesla (TSLA) both reporting late Wednesday, the first of the Magnificent Seven to share results. So far, earnings season has impressed, but expectations were low coming in. Several companies kicked off the week with better-than-expected results, including Domino's Pizza (DPZ) and Verizon (VZ). This could reinforce ideas that consumers remain in a spending mood, a theory also supported by last week's robust retail sales report.

Major indexes finished mixed Friday amid tariff concerns after posting new record intraday highs. This capped a positive week keying off solid company results and upbeat comments on the business climate from bank executives. "We did see some 'sell on the news' price action from the big bank earnings reports and with Netflix after reporting a solid 'beat and raise' quarter," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "Whether this will be a theme that emerges for those stocks that have rallied substantially over the past couple months after they report earnings remains to be seen." This week could be a test as recent high-flyers like IBM (IBM) and GE Vernova (GEV) report.

1. Inflation creeps into data: June's inflation numbers could explain why many at the Fed want more information on tariffs' impact before agreeing to rate cuts. "One might say, just looking at the headline, 'Nothing to see here, not a big deal,'" said Liz Ann Sonders, chief investment strategist at Schwab. "But you go inside the numbers and you're starting to see the impact. The increase in the CPI was led by a pretty decent jump in core goods prices, excluding autos. In fact, core goods ex-autos was the biggest gain in three years, and especially for imported goods. Obviously, that's where the tariffs hit. And it's big areas: It's appliances, apparel, toys, sporting goods, furniture. And goods not subject to tariffs were actually flat to down a little bit." In addition, the "prices paid" component of the Philadelphia Fed Manufacturing Index spiked. Wholesale inflation often trickles down to consumers. Despite inflation concerns, the 10-year Treasury note yield fell today to one-week lows, possibly supportive for stocks.
    
2. Europe and Japan dominate overseas developments: The U.S. dollar index slipped and the yen rose after Japan's Prime Minister Shigeru Ishiba vowed to stay in office after his coalition lost its majority in upper house elections Sunday, Reuters reported. If the coalition collapses, it could be harder for Japan and the U.S. to reach a trade agreement. The dollar also might be affected by this Thursday's European Central Bank (ECB) rate decision, though a pause is expected. In another development that could affect the dollar, Commerce Secretary Howard Lutnick expressed optimism over the weekend that trade deals would be reached with major partners but said the August 1 deadline is firm.
    
3. Breadth check: Entering the week, 65% of S&P 500 stocks traded above their respective 50-day moving averages and 58% trade above their 200-day. That's roughly unchanged from earlier this month for the 50-day and up for the 200-day. Both remain relatively high. Breadth can be an indicator of whether the market is being carried by a few big names or if it has a broader base that might make it more resilient. This rally is broader than some in the recent past when mega-cap strength masked overall lackluster sentiment. Those rallies can quickly end if the few names at the top stumble. Over the last month, nine of 11 S&P 500 sectors are green, led by tech, industrials, and consumer discretionary. Only defensive sectors health care and energy are down, with health care hurt by the U.S. budget cuts to health spending. Though overall breadth looks strong, earnings breadth is another story. FactSet expects 14.1% quarterly earnings growth from the Magnificent Seven but just 3.4% for the other 493 S&P 500 firms.

• Domino's Pizza (DPZ) jumped 6% in pre-market trading despite earnings that fell from a year earlier and missed analysts' average estimate. Investors appeared to focus instead on a 4.3% rise in revenue and a 3.4% jump in U.S. same-store sales, meaning stores open a year or more.
   
• Cleveland-Cliffs (CLF) climbed 4.5% ahead of the open as it reported quarterly losses that were less than analysts had expected. Revenue was in line with Wall Street's views.
   
• Verizon (VZ) climbed nearly 5% ahead of the open after earnings topped analysts' consensus. The company also raised its free cash flow and earnings guidance. The company delivered 293,000 broadband net additions in the quarter but reported 51,000 wireless retail postpaid phone net losses.
   
• Sarepta Therapeutics (SRPT) fell another 10% early today after capsizing nearly 36% on Friday. The U.S. Food and Drug Administration (FDA) plans to request that the company stop all shipments of its gene therapy Elevidys, Reuters reported, after three deaths.
   
• Payments firm Block (XYZ) climbed 9.4% before the open on news the stock will join the S&P 500 index, replacing Hess (HES) after that firm was bought by Chevron (CVX).
   
• Target (TGT) fell 1.5% after being downgraded to Underweight from Equal Weight by Barclays, which says the retailer's sales will continue to underperform.
   
• Bitcoin (/BTC) and stocks related to crypto, including Strategy (MSTR) and Coinbase (COIN) all bounced back early Monday. Crypto-related shares had a rough Friday but that might have reflected some "sell on the news" sentiment after the U.S. House of Representatives passed the Genius Act, which creates a regulatory framework for so-called "stablecoins," or cryptocurrency tokens backed by the dollar. Bitcoin hit an all-time high earlier last week above $122,000.
   
• Of the 12% of S&P 500 companies that already reported second quarter results, 83% beat analysts' earnings per share estimates, FactSet said Friday. Blended second quarter earnings growth combining actual and projected earnings is seen at 5.6%, up from the 4.9% on June 30.
   
• Momentum remains high on a technical basis for the S&P 500 index and Nasdaq-100^® (NDX), with their relative strength indexes (RSI) finishing at 68 and 70 last week. The 70 level is sometimes seen as overbought, though it doesn't necessarily spell trouble ahead for the market. The NDX RSI has been skimming along near 70 for nearly a month and the index keeps making new highs.
   
• If RSI stays up while indexes lose ground, as appeared to happen Friday, it could be a bearish negative divergence suggesting momentum is slowing. "Stocks are also moving into more bearish seasonality so perhaps some near-term caution is warranted given the current setup," Schwab's Peterson said.
   
• Chances of a Fed rate cut next week were less than 5% early Monday, according to the CME FedWatch Tool, and odds of at least one cut by September were around 63%.

Sector check: Since April, our experts at the Schwab Center for Financial Research have kept all sector ratings at Marketperform, indicating uncertainty due to tariffs. That hasn't changed in the most recent Sector Views report.

Though market breadth remains at historically healthy levels of around 66% for the number of S&P 500 stocks trading above their respective 50-day moving averages ($SPXA50R—candlesticks) and 58% for stocks trading above their 200-day moving averages ($SPXA200R—purple line), the 50-day has sunk this month, suggesting the broad rally that helped lift the S&P 500 to recent record highs may be losing some of its base.