Retail ETFs Pop on EU Deal; MAGS, QQQ Rise Ahead of Earnings
- The trade deal between the United States and the European Union initially sent markets higher Monday.
- A busy week of tech earnings boosted Magnificent Seven ETFs.
- The Fed interest rate decision looms, causing bond yields to rise.
Retail ETFs jumped on Monday as the United States clinched a trade deal with the European Union, setting tariffs at 15%. The deal comes just ahead of the Aug. 1 deadline the White House set for all tariff negotiations, refusing to extend or delay any further.
Speaking alongside U.K. Prime Minister Keir Starmer, President Donald Trump explained that going forward, there would be a "global tariff" in the range of 15%-20%. Retail ETFs jumped on the news while broad markets also inched higher before paring gains.
XRT Flatlines, VGK Drops
The SPDR S&P Retail ETF (XRT) rose mildly in early trading Monday before falling by 0.5% midday. The ProShares Online Retail ETF (ONLN) fared much better, jumping nearly 1% before giving back some gains, boosted in part by tech darling Amazon.com Inc. (AMZN).
The EU is the largest trading partner to the United States with major imports in the furniture, wine/alcohol, rubber and machinery categories. The $600 billion dollar deal would see the EU increase American energy and defense imports. The Vanguard FTSE Europe ETF (VGK) fell 1.9% as of midday Monday on the news.
But despite the White House lauding the trade agreement as a "landmark deal," investors have set their sights on earnings and an upcoming Fed decision.
MAGS Jumps Ahead of Major Tech Earnings
Four members of the "Magnificent Seven"—Meta Platforms Inc. (META), Microsoft Corp. (MSFT), Apple Inc. (AAPL) and AMZN—are set to report quarterly earnings this week, turning investor interest to the tech sector.
Markets are set to pay close attention to any news about artificial intelligence and investments into AI tech and strategies. The Roundhill Magnificent Seven ETF (MAGS) jumped Monday as investors were more attracted to risk ahead of earnings. The Invesco QQQ Trust (QQQ), which mirrors the tech-heavy Nasdaq-100 index, also notched gains.
Tech companies will have to clear a lower bar this quarter after analysts slashed estimates amid tariff concerns and the central bank holding rates steady. Last week, Alphabet Inc. (GOOGL) beat earnings expectations and raised spending forecasts. But Mag 7 member Tesla Inc. (TSLA) disappointed, pointing to slumping revenue and tougher margins. Tesla CEO Elon Musk told investors to brace for some rough quarters in the future.
Fed Expected to Hold Rates Steady
Rounding out a busy week ahead, the Federal Reserve is set to meet this week and make a decision on rates. According to the CME FedWatch Tool markets are pricing a 97% chance that the Fed will hold rates steady. A rate cut is largely not expected until the fall at the September FOMC meeting.
Tariff concerns have continued to weigh on the central bank, which is currently walking a tightrope between economic stimulus and reigning in inflation. The impact of tariffs has yet to appear in inflation reports, causing the Fed to hold its course. During testimony last month in front of the House Financial Services Committee, Fed Chair Jerome Powell confirmed that the Fed would have cut rates by now were it not for tariffs.
Bond yields rose Monday in advance of the Fed meeting, sending Treasury bond prices lower. Yields and prices move in opposite directions. The iShares 20+ Year Treasury Bond ETF (TLT) dipped 0.6% as of Monday afternoon.
