The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -0.38%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.55%.  December E-mini S&P futures (ESZ25) fell -0.37%, and December E-mini Nasdaq futures (NQZ25) fell -0.54%.

Stock indexes gave up an early advance on Tuesday and turned lower as most chipmakers retreated following Monday's surge.  The S&P 500 and Nasdaq 100 initially rallied to new all-time highs on Tuesday, driven by strength in chipmakers and AI infrastructure stocks.  Advanced Micro Devices rose more than +3% Tuesday, adding to Monday's +23% surge due to the spending boom in artificial intelligence.  

Optimism that growth in the AI sector and spending on artificial intelligence will translate into corporate profits is a major bullish factor for stocks.  Stocks are also underpinned by hopes that a resilient US economy and additional Fed easing will continue to support the economy. 

US Aug consumer credit rose by +$0.363 million, weaker than expectations of +$14.000 billion and the smallest increase in six months.

Hawkish Fed comments were negative for stocks.  Monday evening, Kansas City Fed President Jeff Schmid said, "With inflation still too high, monetary policy should lean against demand growth to allow the space for supply to grow and relieve price pressures in the economy." On Tuesday, Minneapolis Fed President Neel Kashkari said, "Some of the data we're looking at is sending some stagflationary signals," and that any drastic cuts to interest rates would risk stoking inflation.

The shutdown of the US government is now into its second week, weighing on market sentiment and delaying key economic reports.  The government shutdown means delays in the release of government reports, including Tuesday's international trade data for August and last Friday's monthly payroll report.  A prolonged shutdown could also delay the government's inflation data, scheduled for release on October 15.  The White House has warned that if the government shutdown lingered, it would trigger widespread dismissals of employees in government programs that don't align with President Trump's priorities.  Bloomberg Economics estimates that 640,000 federal workers will be furloughed during a shutdown, which would expand jobless claims and push the unemployment rate up to 4.7%.

The ongoing US government shutdown, expectations of additional Fed easing, and political uncertainty in France and Japan are also driving investors to haven assets, such as gold and Bitcoin.  Gold prices edged up to another record high on Tuesday after Goldman Sachs raised its gold price forecast for 2026 to $4,900 an ounce from $4,300, citing ETF inflows and central bank buying.  According to the latest data, the People's Bank of China added to its gold holdings in September for an eleventh consecutive month.  

Market focus this week will be on any new developments regarding tariffs, trade, or attempts by lawmakers to end the ongoing US government shutdown.  On Wednesday, the minutes of the September 16-17 FOMC meeting will be released.  On Thursday, Fed Chair Powell will give welcoming remarks at a Fed Community Bank Conference.  On Friday, the University of Michigan Oct consumer sentiment index is expected to fall -1.1 to 54.0.

Rising corporate earnings expectations are a bullish backdrop for stocks.  According to Bloomberg Intelligence, more than 22% of companies in the S&P 500 provided guidance for their Q3 earnings results that are expected to beat analysts' expectations, the highest in a year.  However, Q3 profits are expected to have risen by +7.2%, the smallest increase in two years.  Also, Q3 sales growth is projected to slow to 5.9% from 6.4% in Q2. 

The markets are pricing in a 93% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29. 

Overseas stock markets on Tuesday settled mixed.  The Euro Stoxx 50 closed down -0.27%.  China's Shanghai Composite did not trade and is closed for the week-long Lunar New Year holiday.  Japan's Nikkei Stock 225 rose to a new record high and closed up +0.01%.

Interest Rates

December 10-year T-notes (ZNZ5) on Tuesday closed up by +9 ticks.  The 10-year T-note yield fell -2.5 bp to 4.127%.  Dec T-notes recovered from a 1-week low on Tuesday, and the 10-year T-note yield fell from a 1-week high of 4.175%.  T-notes are supported by the ongoing US government shutdown, which could add to job losses and weaken the US economy, allowing the Fed to continue cutting interest rates.  T-notes also found support from Tuesday's slide in equity markets.  T-notes raced to their highs Tuesday afternoon on strong demand for the Treasury's $58 billion auction of 3-year T-notes that had a bid-to-cover ratio of 2.66, better than the 10-auction average of 2.60.

T-notes initially moved lower Tuesday on hawkish Fed comments.  Kansas City Fed President Schmid said policymakers need to keep pressing against inflation, which has remained stubbornly high, and Minneapolis Fed President Neel Kashkari warned that any drastic cuts to interest rates would risk stoking inflation.  Supply pressures are also undercutting T-note prices as the Treasury will auction $119 billion of T-notes and T-bonds this week. 

European government bond yields finished lower on Tuesday.  The 10-year German bund yield fell -0.9 bp at 2.709%. The 10-year UK gilt yield fell from a 1-week high of 4.758% and finished down by -1.6 bp to 4.719%.

German Aug factory orders unexpectedly fell -0.8% m/m, weaker than expectations of +1.2% m/m.

Swaps are discounting a 1% chance for a -25 bp rate cut by the ECB at its next policy meeting on October 30.

US Stock Movers

Chip makers and AI infrastructure stocks gave up early gains on Tuesday and sold off, weighing on the broader market.  Seagate Technology Holdings (STX) closed down more than -6% to lead losers in the S&P 500.  Also, Lam Research (LRCX) closed down more than -6%, and Applied Materials (AMAT) closed down more than -5%.  In addition, KLA Corp (KLAC), NXP Semiconductors NV (NXPI), and ON Semiconductor Corp (ON) closed down more than -4%, and Analog Devices (ADI) and ASML Holding NV (ASML) closed down more than -3%.  Finally, GlobalFoundries (GFS), Micron Technology (MU), Marvell Technology (MRVL), and Microchip Technology (MCHP) closed down more than -2%.  

Aehr Test Systems (AEHR) closed down more than -17% after reporting that Q1 revenue decreased by -16% to $11 million from $13.1 million in the year-earlier quarter. 

Ford Motor (F) closed down more than -6% after the Wall Street Journal reported the company faces months of disruptions to its business after a major fire at an aluminum plant in New York.

Homebuilder stocks were under pressure on Tuesday after Evercore ISI downgraded the sector to in line from outperform.  DR Horton (DHI), KB Home (KBH), Lennar (LEN), PulteGroup (PHM), and Toll Brothers (TOL) closed down more than -3%.  

CarMax (KMX) closed down more than -4% after Stephens downgraded the stock to equal weight from overweight.

Autoliv (ALV) closed down more than -3% after UBS downgraded the stock to neutral from buy with a price target of $124.

Dollar Tree (DLTR) closed down more than -2% after Jeffries downgraded the stock to underperform from hold with a price target of $70. 

GE Healthcare Technologies (GEHC) closed down more than -2% after Citigroup Global Markets downgraded the stock to neutral from buy.

AppLovin (APP) closed up more than +7% to lead gainers in the S&P 500 and Nasdaq 100 after Citigroup said they'd "be buyers on any weakness."  

Advanced Micro Devices (AMD) closed up more than +3%, adding to Monday's +23% surge, after Jeffries upgraded the stock to buy from hold with a price target of $300, citing the company's deal with OpenAI. 

PayPal Holdings (PYPL) closed up more than +4% today after unveiling PayPal Ads Manager, which will allow businesses that use PayPal to become their own retail media network and generate new revenue streams.

Dell Technologies (DELL) closed up more than +3% after it hiked its earnings estimates for the next four years, citing demand for artificial intelligence products.

Netflix (NFLX) closed up more than +2% after Seaport Global Securities upgraded the stock to buy from neutral with a price target of $1,385.

Veeva Systems (VEEV) closed up more than +2% after TD Cowen upgraded the stock to buy from hold with a price target of $380.

International Business Machines (IBM) closed up more than +1% to lead gainers in the Dow Jones Industrials after it said it will integrate Anthropic's Claude family of large language models into its software portfolio. 

Constellation Brands (STZ) closed up more than +1% after reporting Q2 comparable net sales of $2.48 billion, better than the consensus of $2.45 billion. 

Earnings Reports(10/8/2025)

Acuity Inc (AYI), Cal-Maine Foods Inc (CALM), Conagra Brands Inc (CAG), Novagold Resources Inc (NG), Rezolve AI PLC (RZLV), RPM International Inc (RPM).