Morning in New York: Nikkei sends a positive signal to investors in the US

Daily review and forecast of events on the U.S. stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

The key event that will determine the mood of the session on July 23 is the conclusion of the agreement on duties between the U.S. and Japan. The news about it appeared after Tuesday's trading closed. Duties on imports of Japanese cars to the U.S. will be reduced from 25% to 15%. At the same time, according to President Trump, Japan will invest $550 billion in the U.S. economy, and the U.S. "will receive 90% of the profits" from this deal. On the background of the news, the Nikkei 225 index jumped by 3.5%, Toyota shares rose by more than 14%, other automakers, including Honda, showed strong positive dynamics. On U.S. stock exchanges, the signed agreements may be regarded as a signal to mitigate foreign trade risks. However, it is possible that part of the effect will be offset by the fact that this deal has long been expected by investors, which was reflected in the increased market multiples.

This Wednesday will see the release of the secondary market home sales data for June (consensus: 4.01 million (-0.7% mom), previous value: 4.03 million). Buyer activity remains sluggish amid limited supply. Nevertheless, there are signs of revival in the segment of new buildings. Yesterday, the shares of major developers showed strong growth after D.R. Horton (DHI: + +3.5 mln. Horton (DHI: +17%) and PulteGroup (PHM: +11.5%) released quarterly reports with revenues and closed deals exceeding consensus. Additional support for this growth was provided by PulteGroup management's statement about the positive reaction of buyers to lower mortgage rates. In these conditions the upward potential of securities of the sector remains.

Apart from economic news, investors' attention may be attracted by the third round of talks in Istanbul between Russia and Ukraine, which are scheduled to start on July 23. According to President Zelenskyy, the meeting will discuss the exchange of prisoners and the terms of a possible ceasefire. The talks come amid President Trump's warning of "severe" sanctions if there is no progress by early September. Moscow has already said that it does not expect a "miraculous breakthrough", but the very fact that the dialog is continuing can be taken as a moderately positive geopolitical signal.

Prior to the opening of the main session, GE Vernova (GEV),AT&T (T), Thermo Fisher (TMO) and NextEra Energy (NEE) will report quarterly results. At the postmarket, Tesla (TSLA), Alphabet (GOOGL), ServiceNow (NOW), T-Mobile (TMUS) and IBM (IBM) will present financial results.

Futures on U.S. stock indices are trading in a slight plus. We believe that the market will remain calm ahead of the release of reports Tesla and Alphabet. We assess the balance of risks for the upcoming session as neutral with an average level of volatility. We focus on the S&P 500 movements in the range of 6265-6350 points (from -0.7% to +0.7% to the closing level of the previous session).

- Texas Instruments (TXN) quarterly EPS was $1.41 versus the consensus of $1.35, with revenue up 16% YoY to $4.4 bln. The Analog (+18%) and Embedded Processing segments were the most impressive contributors to this result. Nevertheless, TXN shares collapsed by 12% on the post-market, signaling investors' uncertainty about the business prospects. The company's management stated that most segments are experiencing a cyclical recovery, although the automotive division has not yet improved and the current growth cycle is likely to be less pronounced.

- Intuitive Surgical (ISRG) reported a 21% increase in revenue to $2.44 billion for the latest quarter, with EPS of $2.19. The number of da Vinci procedures increased 17%, with 395 new systems installed. Rapid adoption of da Vinci 5 (180 installations vs. 70 a year ago) confirms strong demand. The stock reacted neutrally to the release.

- Capital One (COF) generated earnings per share of $5.48 for the quarter, beating estimates by 43%. Significant exceeding of expectations by actual performance was recorded for the second consecutive reporting period, indicating the sustainability of the lending business. The issuer's shares are growing by 3% against this background.

- SAP (SAP) earnings per share came in at €1.5 against average expectations of €1.43, revenue, which came in at €9.03 billion, fell slightly short of consensus. Cloud segment revenue growth slowed to 24%. The operating profit guidance was unchanged.

Trading on July 22 on the U.S. stock exchanges ended mixed. S&P 500 added a symbolic 0.06%, Nasdaq 100 lost 0.5%, Dow Jones rose by 0.40%, and Russell 2000 - by 0.79%. The "Magnificent Seven" stocks also showed mixed performance. Tesla (TSLA) showed the most pronounced rise: its quotations rose by 1.1%, while shares of Nvidia (NVDA) fell by 2.54%. The broad market was led by companies from the health care industry (XLV +1.86%). The technology sector (XLK: -0.93%) was the outlier, mainly due to the aforementioned Nvidia (NVDA) correction. There was a noticeable flow of capital from "growth" to "value" stocks.

The key event of the trading day was the US mutual trade agreements with Indonesia and the Philippines. Under the new terms, supplies of US products to these countries will be exempt from duties, while their exports to the US will be subject to a tariff of 19%. Previously, the rate was 20% for the Philippines and 32% for Indonesia. Thus, the new arrangements are much more favorable for the US and at the same time stimulate its exporters.

Fed Chairman Jerome Powell, speaking at a banking conference, centered his speech on a review of capital requirements for major financial corporations, including risk-based regulations, stress tests, and leverage ratios. Powell emphasized that the reforms would be addressed holistically, not piecemeal, and thanked Vice Chair Michelle Bowman for leading the process. However, the investment community was not so much interested in banking regulation as in potential hints of monetary easing. Despite the slowdown in price growth, the Fed maintains a restrained stance, believing that the current level of inflation and a strong labor market do not provide a reason to cut rates. Powell reiterated that all future steps will depend solely on incoming macro data and not on market expectations or political pressures.

The business activity index from FRB Richmond fell to -20 points (forecast: -3, previous value: -8), indicating a sharp deterioration in manufacturing activity in the US Southeast. This data contrasts sharply with the previously released FRB Philadelphia index, which rose to +15.9 (forecast: +1, previous value: -4) on July 17, recording an unexpected improvement in industrial conditions in the American Northeast. This statistic increases the uncertainty of assessments of the current state of the economy and may reflect the uneven impact of tariff policy on different regions.

- Philip Morris (PM: -8.4%) reported earnings above expectations, but its revenue fell short of consensus. Strong results in the smokeless products segment offset lower revenue from conventional cigarettes. The company raised its full-year guidance, but its EPS guideline for the current quarter was below average market expectations.

- RTX (RTX: -1.6%) beat earnings and revenue forecasts, especially in the aviation post-warranty segment (+16% y/y). At the same time, the annualized guideline was lowered due to duties and tax changes. Earlier, the negative impact of the White House tariff policy on its business this year was estimated by the company at $850 mln.

- General Motors (GM: -8.1%) reported strong results and reaffirmed its full-year guideline, but investors were concerned about its declining margins and EBIT in North America. The company forecast a stronger duty impact in the current quarter and warned of a seasonal decline in deliveries.

- Coca-Cola (KO: -0.9%) reported quarterly earnings of $0.87 with a consensus of $0.83 and revenue of $12.62 billion on average forecasts of $12.54 billion. Revenue growth in Europe offset declines in other regions. The launch of Donald Trump's cane sugar version of the drink was confirmed.

This article was AI-translated and verified by a human editor