| | | Market Snapshot
| Dow | 45544.88 | -92.02 | (-0.20%) | | Nasdaq | 21455.55 | -249.61 | (-1.15%) | | SP 500 | 6460.26 | -41.60 | (-0.64%) | | 10-yr Note |
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| | NYSE | Adv 1341 | Dec 1416 | Vol 1.11 bln | | Nasdaq | Adv 1736 | Dec 2762 | Vol 7.73 bln |
Industry Watch
| Strong: Health Care, Energy, Real Estate, Consumer Staples, Financials, Materials |
| | Weak: Information Technology, Industrials, Consumer Discretionary |
Moving the Market
--Weakness in most mega-cap stocks
--Underperformance of semiconductor stocks
--No real surprises in July PCE inflation data, which means PCE and core PCE inflation remained sticky above Fed's 2.0% target
--Caterpillar warns higher-than-expected tariff costs will weigh on its full-year adjusted operating margin
--Position squaring in front of Labor Day weekend
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Closing Stock Market Summary
29-Aug-25 16:20 ET
Dow -92.02 at 45544.88, Nasdaq -249.61 at 21455.55, S&P -41.60 at 6460.26
[BRIEFING.COM] The stock market started today's session on a lower note, sliding at the open and setting the table yet again for a buy-the-dip opportunity. This time, however, there was no buy-the-dip interest. Instead, the indices remained pinned in negative territory, unable to escape the weight of losses in the mega-cap space, the semiconductor industry, and a general lack of buying interest ahead of the Labor Day weekend.
Today was a day of consolidation following a very good month for the stock market that produced record highs for the Dow, Nasdaq, and S&P 500.
Small-cap stocks, mid-cap stocks, large-cap stocks, and mega-cap stocks, as a class, were all on the weaker side of things in a lightly-traded session that reflected an early jump on holiday pursuits. The Russell 2000 declined 0.5%, the S&P MidCap 400 dropped 0.5%, the equal-weighted S&P 500 fell 0.1%, and the Vanguard Mega Cap Growth Index Fund (MGK) lost 1.2%. Markets will be closed on Monday in observance of Labor Day.
For the participants that were around today, they observed a market devoid of concerted leadership and pressured by the weight of losses in NVIDIA (NVDA 174.24, -5.93, -3.29%), the fallout in Dell (DELL 122.12, -11.93, -8.90%) and Marvell (MRVL 62.86, -14.36, -18.60%) following their earnings reports, the weakness in Caterpillar (CAT 419.19, -15.72, -3.61%) after it acknowledged higher-than-expected tariff costs will lead to its full-year adjusted operating margin coming in at the bottom end of the company's guidance, and a combination of weakening consumer sentiment and sticky PCE inflation.
What they didn't observe was any meaningful change in the market's expectations for a rate cut at the September FOMC meeting. PCE inflation may have been sticky, but so, too, was the probability of a rate cut at that meeting. According to the CME FedWatch Tool, the probability sits at 86.9% versus 86.7% a day ago.
That sentiment found an advocate in Fed Governor Waller (FOMC voter), who said he supports a 25 basis-point cut and anticipates additional cuts over the next three to six months since the target range for the fed funds rate (4.25-4.50%) is 125-150 basis points above neutral.
Fed Governor Cook, meanwhile, was preoccupied with other matters today. There was a hearing on her bid to prevent President Trump from firing her, although the hearing ended without any ruling, according to CNBC.
The stock market wasn't preoccupied with that hearing so much as it was preoccupied by holiday plans and the underperformance of the information technology sector (-1.6%), which is the market's most heavily weighted sector. A 3.2% decline in the Philadelphia Semiconductor Index underscores how the sector's semiconductor components factored heavily in the sector's weakness.
There were only two other sectors that underperformed the S&P 500 (-0.6%) today. They were the consumer discretionary (-1.1%) and industrials (-1.0%) sectors.
Some pockets of relative strength were found in the health care (+0.7%), consumer staples (+0.6%), real estate (+0.6%), energy (+0.5%), financials (+0.2%), and materials (flat) sectors, but collectively that wasn't enough to overcome the losses in the information technology, consumer discretionary, industrials, utilities (-0.4%), and communication services (-0.3%) sectors.
The end result was that the market finished August, which had its share of bang-up days, with a whimper.
Separately, today's action in the Treasury market was largely uneventful. The 2-yr note yield settled two basis points lower at 3.62%, while the 10-yr note yield settled up two basis points at 4.23%.
- Nasdaq Composite: +11.1% YTD
- S&P 500: +9.8% YTD
- DJIA: +7.1% YTD
- Russell 2000: +6.0% YTD
- S&P MidCap 40: +4.2% YTD
Reviewing today's economic data:
- Personal income, bolstered by a 0.6% increase in wages and salaries, increased 0.4% month-over-month in July (Briefing.com consensus: 0.4%) following a 0.3% increase in June, personal spending increased 0.5% month-over-month (Briefing.com consensus: 0.5%) following an upwardly revised 0.4% increase (from 0.3%) in June, the PCE Price Index increased 0.2% month-over-month (Briefing.com consensus: 0.2%) following a 0.2% increase in June, and core PCE inflation, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus: 0.3%) following a 0.3% increase in June.On a year-over-year basis, PCE inflation was up 2.6%, versus 2.6% in June, while core PCE inflation was up 2.9%, versus 2.8% in June. The Fed's inflation target is 2.0%.
- The key takeaway from the report is that it was largely in line with expectations, so the market is apt to stick to its thinking that there will be a rate cut in September even though PCE inflation remains stuck above the Fed's 2.0% target.
- The final University of Michigan Consumer Sentiment reading for August checked in at 58.2 (Briefing.com consensus: 58.6) versus the preliminary reading of 58.6 and the final reading of 61.7 for July. In the same period a year ago, the index stood at 67.9.
- The key takeaway from the report is that perceptions about the economy slipped in many aspects, and the weaker sentiment was visible across groups by age, income, and stock wealth.
- July Adv. Intl. Trade in Goods -$103.6 bln (prior revised to -$84.9 bln from -$96.4 bln); July Adv. Retail Inventories 0.2% (prior revised to 0.1% from 0.3%); July Adv. Wholesale Inventories 0.2% (prior 0.2%).
- August Chicago PMI 41.5 vs. 46.0 Briefing.com consensus; prior 47.1.
Key economic data on tap
29-Aug-25 15:25 ET
Dow -99.13 at 45537.77, Nasdaq -246.31 at 21458.85, S&P -41.66 at 6460.20
[BRIEFING.COM] On the bright side, the market is at the upper end of its afternoon trading range. On the less bright side, that simply means that it isn't down as much as before, but it is still down.
That is not an unnerving situation, knowing how far the market has come since April and knowing that those huge gains were padded in August.
When participants return from the Labor Day holiday, they will do so with another round of important economic data on tap. Specifically, the ISM Manufacturing Index, JOLTS - Job Openings, Trade Balance, ISM Services, and August Employment Situation Report are all on the docket.
The most important report in that grouping is the employment situation report, as a softening labor market seems to be providing the Fed some cover to cut rates at its September 16-17 FOMC meeting even though inflation rates are closer to 3.0% than the Fed's 2.0% target.
Mega-cap stocks remain the pressure point
29-Aug-25 15:00 ET
Dow -126.63 at 45510.27, Nasdaq -258.29 at 21446.87, S&P -45.05 at 6456.81
[BRIEFING.COM] The action in the stock market resembles a summer Friday before a long weekend. Volume is light, and there hasn't been much movement in the indices after the opening activity.
It is understandable that many participants were waiting to see the PCE report this morning before calling it a day (and week) and getting a jump on the holiday weekend.
The main pressure point today continues to be the underperformance of the mega-cap cohort. The Vanguard Mega Cap Growth Index Fund (MGK 383.64, -5.00, -1.29%) is down 1.3%. The losses within that cohort have led to a 0.7% decline for the market cap-weighted S&P 500.
Things aren't as bad for the equal-weighted S&P 500, which is down only 0.2%. In fact, the equal-weighted S&P 500, up 2.5% for the month, has outperformed the market cap-weighted S&P 500, which is up 1.8% in August.
The performance star, however, has been the Russell 2000, up 6.8% this month. The Russell 2000 Value Index, for its part, is up 8.1%.
S&P 500 slips 0.7% as EMN rallies on insider buys; VST lags on tech/AI pullback
29-Aug-25 14:30 ET
Dow -128.61 at 45508.29, Nasdaq -263.74 at 21440.03, S&P -45.89 at 6455.97
[BRIEFING.COM] The S&P 500 (-0.71%) is in second place on Friday afternoon, down about 45 points.
Briefly, S&P 500 constituents J.M. Smucker (SJM 110.16, +3.44, +3.22%), Edison (EIX 56.39, +1.67, +3.05%), Eastman Chemical (EMN 70.22, +2.04, +2.99%) pepper the top of the standings. EMN rallies after a cluster of insider purchases by top executives and directors, the first in at least five years, signaled management confidence at multi-year lows.
Meanwhile, Vistra Corp. (VST 188.18, -8.52, -4.33%) is one of the worst-performing stocks, underperforming amid pressure in tech/AI stocks which have served to boost power demand of late.
Gold jumps 1.2% to $3,516, up 2.9% on week amid Fed cut bets, weaker dollar
29-Aug-25 14:00 ET
Dow -92.45 at 45544.45, Nasdaq -250.65 at 21453.12, S&P -41.24 at 6460.62
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-1.15%) is firmly today's worst-performing average, down about 250 points.
Gold futures settled $41.80 higher (+1.2%) at $3,516.10/oz, as markets grew increasingly comfortable that the Fed would soon initiate interest rate cuts, supported by U.S. inflation data that aligned with expectations. A softer dollar further reinforced demand, while political uncertainty clouding Fed independence added to safe-haven buying. As a result, gold closed the week with a gain of approximately 2.85%, marking one of its strongest weekly performances in recent periods.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $97.78.
Ulta Beauty lower despite beat-and-raise Q2 report; cautious tone for 2H26 weighing on shares (ULTA)
Ulta Beauty (ULTA -6%) is trading lower today after reporting its Q2 (Jul) results last night. This retailer of beauty products delivered its top and bottom line above expectations. The company is no stranger EPS beats and extended its streak to four consecutive quarters of double-digit upside. Revenue was also strong, growing 9.3% yr/yr to $2.79 bln, coming in above expectations and marking its highest growth rate in 5 quarters. While management raised its FY26 guidance for EPS, revenue, and comps, we think its cautious tone is driving the negative reaction. It highlighted ongoing uncertainty around consumer spend, and notably, its comp guidance of +2.5-3.5% implies flat-to-low single-digit growth in the second half.
- Revenue was boosted by ULTA's impressive comp of +6.7%, accelerating from +2.9% in Q1 (April). It was nice to see its comp driven mostly by traffic compared to average ticket, which were +3.7% and +2.9% respectively. In terms of the cadence of comps, growth was strongest in May and July, primarily reflecting shifts in the timing of key promotional events, with both store and digital channels contributing.
- Strength was broad based across all of its categories. Fragrance continues to stand out, delivering robust double-digit growth, driven by Mother's day and Father's Day events, as well as new product launches. Its skincare and wellness category also continued its momentum, growing in the high-single digit range, led by growth in body care and wellness, with improving trends across its mass and prestige segments. Encouragingly, makeup and haircare categories accelerated in the quarter, both delivering mid-single digit comp growth.
- Another item worth highlighting was the late acquisition of Space NK, a specialty beauty retailer based in the UK. Only one week was included in this report, but it gives ULTA an entry point into international markets. Management noted this was a less capital-intensive way to tap one of the largest beauty markets while gaining learnings in high street retail.
- Moving on to what we think is causing the negative reaction. While management emphasized that beauty engagement remains healthy and continues to provide a sense of comfort to consumers in a dynamic macro environment, its outlook for comps shows a moderation in the back half. Management described the guidance as prudently cautious, so there could be some conservatism embedded in the guide.
Overall, we thought ULTA's Q2 was impressive across the board, but the cautious tone around 2H26, particularly in comps, is driving today's weakness. With the stock having rebounded strongly off April lows and setting a new 52-wk high yesterday, it's also possible investors are taking their profits and stepping aside to see how the second half plays out.
Marvell's record Q2 revenue marred by flat Q3 outlook, XPU revenue timing concerns (MRVL)
Marvell's (MRVL) Q2 earnings report has elicited a steep selloff in the stock, as the semiconductor company delivered disappointing in-line EPS of $0.67 -- falling short of its historical pattern of modest beats -- while revenue of $2.006 bln slightly missed consensus expectations. Compounding the frustration, management issued underwhelming in-line guidance for Q3, which failed to inspire confidence and has directly contributed to the stock's plunge, reflecting broader concerns about near-term growth deceleration
While MRVL notched a record Q2 revenue milestone, propelled by robust AI demand for its custom silicon accelerators and electro-optics interconnects, as well as an accelerating recovery in enterprise networking and carrier infrastructure end markets, the pace of expansion in its pivotal Data Center segment showed signs of moderation.
- Specifically, Data Center revenue surged 69% yr/yr to $1.491 bln, accounting for 74% of total sales and highlighting MRVL's entrenched position in hyperscale AI infrastructure, yet this marked a sequential deceleration from Q1's 76% growth rate, attributable to transitional dynamics in program ramps and inventory adjustments at key customers. This underlying slowdown, despite overall topline strength, signals potential lumpiness in AI-related deployments, where explosive year-over-year gains mask quarter-to-quarter volatility as customers navigate capacity buildouts and technology transitions.
- Looking ahead, MRVL anticipates a qtr/qtr decline in custom silicon revenue for Q3, which is expected to offset robust growth in electro-optics products, resulting in broadly flat sequential Data Center revenue -- a stark contrast to the segment's prior momentum and a key factor in the muted guidance. Management attributes this dip to temporary fluctuations tied to delivery timing and supply chain optimizations, particularly around advanced node transitions, rather than any erosion in underlying demand.
- Reassuringly, the company forecasted a meaningful rebound in Q4, with custom silicon poised to deliver substantially stronger performance, underscoring that this represents a short-term hiccup in an otherwise accelerating AI trajectory.
- The disappointing Q3 guidance, coupled with a lack of granular clarity during the Q2 earnings call, has amplified uncertainty around MRVL's high-profile XPUs with Amazon (AMZN) and Microsoft (MSFT), two cornerstone contracts that were anticipated to catalyze significant revenue inflection. These deals -- encompassing custom AI accelerators like AMZN's Trainium series and MSFT's Maia platforms -- were secured as multi-year design wins emphasizing MRVL's expertise in tailored, power-efficient silicon for cloud-scale AI training and inference, with initial ramps expected to contribute meaningfully to FY26 Data Center growth.
- However, the timing of substantial revenue recognition appears delayed beyond initial projections, potentially shifting from FY26 into FY27 due to protracted validation phases, supply constraints on advanced packaging, and customer-side deployment delays amid broader AI ecosystem maturation; this opacity not only tempers near-term expectations but also raises questions about execution risks in a fiercely competitive landscape.
- Amid the Data Center headwinds, MRVL's Enterprise Networking and Carrier Infrastructure markets stood out as beacons of strength in Q2, with revenue expanding 28% yr/yr in Enterprise Networking to approximately $450 mln and surging 71% in Carrier Infrastructure to around $350 mln, collectively signaling a robust inflection in these recovering segments.
- For Enterprise Networking, the growth is driven by renewed capital spending on 800G/1.6T Ethernet switches and data center interconnects, as enterprises upgrade legacy infrastructure to support hybrid cloud and AI workloads, bolstered by MRVL's Prestera and Teralynx platforms that offer superior bandwidth efficiency and lower latency. In Carrier Infrastructure, the acceleration stems from 5G densification and edge computing initiatives, where operators are deploying MRVL's OCTEON processors for baseband and fronthaul applications, aided by favorable industry cycles including spectrum auctions and fiber optic expansions.
MRVL's Q2 results, while achieving a revenue record, were overshadowed by the in-line EPS delivery and slight revenue shortfall, but the true catalyst for today's steep stock decline lies in the disappointing Q3 guidance and evident slowdown in Data Center growth momentum. Investors, accustomed to AI-fueled beats, are wary of the near-term flatness in this core segment, exacerbated by uncertainties in custom silicon ramps and XPU contract timelines with major hyperscalers.
Autodesk designs strong Q2 beat-and-raise report, fueled by data center construction activity (ADSK)
Autodesk (ADSK) is surging in the wake of its Q2 earnings report, as the leading provider of design and engineering software comfortably exceeded consensus expectations for both EPS and revenue, with the latter expanding by over 17% yr/yr to $1.76 bln -- the company's strongest yr/yr growth in more than three years. Management further bolstered investor confidence by issuing upside guidance for Q3, projecting revenue of $1.80-$1.81 bln and EPS of $2.48-$2.51, while raising its FY26 outlook across all key metrics.
These revisions reflect accelerating end-market demand, with particular strength in data center construction, infrastructure, and manufacturing, where customers are increasingly adopting ADSK's cloud-enabled platforms to drive efficiency and innovation in complex projects.
- A critical forward-looking indicator for ADSK's subscription-heavy model, billings surged to $1.678 bln in Q2, marking a 36% yr/yr increase and an acceleration from Q1's 29% growth, signaling robust pipeline health and customer commitment. This outperformance stems from several tailwinds, including the ongoing shift to annual billing for multi-year contracts, which contributed approximately $129 mln to the quarter's billings, and favorable foreign exchange dynamics.
- More fundamentally, the acceleration highlights accelerating adoption of ADSK's cloud-based offerings, such as Fusion for collaborative product design and Construction Cloud for streamlined project management, which are gaining traction among enterprises seeking scalable, data-integrated workflows. Additionally, rising integration of AI enhancements -- ranging from generative design tools in Fusion to automated constraint-solving features -- has boosted productivity and user retention, with management noting high acceptance rates for these capabilities.
- The Architecture, Engineering, Construction, and Operations (AECO) segment emerged as a clear standout in Q2, with revenue leaping 24% in constant currency to $878 mln, outpacing the company's overall growth and underscoring its role as a high-margin growth engine. This performance is largely attributable to sustained capital investments in data centers, driven by AI and cloud infrastructure buildouts, as well as infrastructure projects tied to government spending and industrial expansion, which have more than offset persistent softness in commercial real estate.
- ADSK's AutoCAD and AutoCAD LT suite, along with its Manufacturing (MFG) business, both posted healthy revenue growth of 14% yr/yr in Q2, reflecting steady demand for core design tools amid broader industrial resilience.
- For AutoCAD and AutoCAD LT, which generated $440 mln in revenue, the expansion is fueled by persistent adoption among small-to-medium enterprises and freelancers for 2D/3D drafting needs, bolstered by seamless integration with cloud extensions and AI-assisted automation features that streamline workflows and reduce errors. In the MFG segment, revenue reached $334 mln, driven by manufacturers' focus on digital twins and supply chain optimization in the face of geopolitical volatility; tools like Inventor and Fusion are enabling faster prototyping and simulation, particularly in automotive and aerospace subsectors where efficiency gains are paramount.
ADSK's Q2 results exemplify a company firing on all cylinders, with accelerating billings growth serving as a compelling proxy for future revenue durability in its subscription ecosystem. This momentum is partly propelled by robust data center construction activity, where surging AI infrastructure investments are amplifying demand for ADSK's specialized tools, alongside broader tailwinds in infrastructure and manufacturing.
Best Buy posts best comp growth in three years, yet cautious FY26 outlook weighs on stock (BBY)
Best Buy (BBY) delivered a solid performance in 2Q26, surpassing analyst expectations for EPS, revenue, and comparable sales in a macroeconomic environment that continues to pressure discretionary retailers with elevated interest rates, uneven consumer confidence, and tariff-induced cost volatility. CEO Corie Barry highlighted the +1.6% enterprise comparable sales growth as the strongest in three years, attributing it to strategic merchandising around innovation cycles and value-oriented promotions that resonated with budget-conscious shoppers.
Yet, despite this upside, the company opted to reaffirm rather than raise its FY26 guidance -- EPS of $6.15-$6.30, revenue of $41.1-$41.9 billion, and comparable sales of -1.0% to +1.0% -- a decision that disappointed investors anticipating a more optimistic revision and triggered a sharp selloff in the stock.
- The conservative FY26 outlook stems primarily from escalating tariff pressures, which are anticipated to weigh on both consumer spending power and BBY's cost structure, exacerbating the already cautious backdrop of subdued big-ticket purchases and delayed home-related expenditures.
- On the business side, tariffs could inflate COGS for imported electronics and appliances, with retaliatory measures from trading partners like China further complicating supply chains. That said, Barry noted the company is currently trending toward the higher end of its sales range, buoyed by early back-to-school momentum and Q2's outperformance, suggesting underlying demand resilience if macro conditions stabilize.
- BBY has proactively mitigated exposure by collaborating with vendors to diversify manufacturing away from China, reducing the share of product costs tied to Chinese imports from approximately 55% in March 2025 to 30-35% today; this shift incorporates more sourcing from tariff-exempt regions like the U.S. and Mexico and lower-duty alternatives such as Vietnam, India, South Korea, and Taiwan, alongside strategies like accelerated shipments, supplier cost absorption, and selective price adjustments implemented as a last resort by mid-May.
- Enterprise comparable sales marked a meaningful inflection point in Q2, flipping to positive territory with a 1.6% gain after Q1's -0.7% decline, signaling early signs of stabilization in the consumer electronics cycle as replacement demand for aging tech picks up amid innovation launches. This improvement was notably influenced by modest price increases across select categories to offset tariff-related costs, which helped bolster the topline without materially deterring volume in high-demand areas, though elasticity remains a monitored risk heading into holiday seasonality.
- Strength was evident in several key segments: gaming posted robust growth, fueled by the Nintendo (NTDOY) Switch 2 launch in early June, which drove preorders, midnight store openings, and ancillary sales in handheld devices and augmented reality glasses; computing achieved another quarter of expansion that spanned across broad price points and upgrade cycles; and mobile phones delivered comparable sales growth for the first time in three years. Conversely, softness persisted in appliances, where high interest rates continue to suppress home improvement spending, and home theater, impacted by lapping prior-year strength and tariff-driven pricing hesitancy.
BBY's Q2 performance stands out as a testament to operational resilience, with the strongest comparable sales growth in three years highlighting the company's ability to capitalize on innovation-driven demand in categories like gaming and computing amid a tough retail climate. However, the reaffirmation of cautious FY26 guidance -- despite positive trends -- effectively tempers enthusiasm, as tariff uncertainties and potential consumer pullback overshadow the quarter's achievements.
Burlington Stores beat-and-raise Q2 results fueled by 2.0 initiatives; a bit cautious on 2H26 (BURL)
Burlington Stores (BURL +7%) is trading sharply higher today after reporting its Q2 (Jul) results this morning, hitting a new 3-year high. This off-price retailer delivered its largest EPS beat in over 4 years, while Revenue increased 9.7% yr/yr to $2.7 bln, accelerating from 6% growth in Q1 (Apr) and topping expectations. Comp store sales jumped +5%, well above prior guidance of flat to +2%. Adding to the positive move, the company raised its guidance for EPS, revenue, and comps, underscoring how its strategic initiatives and value are resonating with consumers in the current macro environment.
- BURL attributed its strong Q2 results directly to its Burlington 2.0 initiatives. Merchandising 2.0 gave buyers the tools to pivot assortment and margins in response to tariff shocks, while Stores 2.0 upgrades delivered a noticeable sales lift. Additionally, recently opened stores, many of which are now entering the comp base, also contributed. Management emphasized these initiatives are still in the early stages and expected to drive further gains over time.
- BURL's comp of +5% was a bright spot, accelerating nicely from the flat comp in Q1 (Apr). Its comp was driven by higher transaction size, while traffic was "flattish." Management noted that the trend in Q2 started out slowly, mostly related to cooler weather in the Midwest and Northeast. Its trend picked up in June and July as weather normalized. BURL's strong heritage in outwear means that it is a bit more sensitive to seasonal weather variations than other retailers. Another impressive metric was its operating margin, which expanded 120 bps yr/yr, driven by stronger merchandising margins and expense efficiencies across P&L.
- What stands out about the nice comp lift is that management noted that its newer stores are ramping ahead of chain averages, which it expects to create a comp tailwind that should build over the next few years.
- The company is a bit cautious heading into the second half of the year. Management is holding comp guidance at +0-2% for Q3 and Q4, noting uncertainty, sensitivity to weather, and a tough +6% comp in Q4 (Jan) of last year. Additionally, BURL is not passing the full Q2 EPS beat into FY26 guidance due to incremental tariff pressure. Still, this reflects its standard playbook of planning conservatively and chasing sales when trends strengthen.
Overall, this was a great quarter for BURL, as comp sales accelerated nicely. Investors are not really responding to the cautious Q3 outlook, as the company is typically conservative and has delivered substantial EPS upside in recent quarters. On a final note, it was nice to see the stock push above the $300 level for the first time since 2021, with investors now looking ahead to continued comp tailwinds from younger stores and Burlington 2.0 initiatives.
The Big Picture
Last Updated: 29-Aug-25 14:34 ET | Archive
Treasury market trading terms that matter for stocks are defined
Briefing.com Summary:
*Bull steepener, bull flattener, bear steepener, bear flattener: defined.
*The slope of the yield curve holds various implications for the stock market.
*Equity investors aren't seeing a threat from where long-term rates currently stand.
The Federal Reserve is going to cut the target range for the fed funds rate at the September 16-17 FOMC meeting... or so the market thinks. That thought process is evident in the fed funds futures market, which currently places an 86.9% probability on the likelihood of a 25 basis point cut to 4.00-4.25%, according to the CME FedWatch Tool.
It is also evident in the Treasury market, specifically in the 2-yr note yield, which has dropped 32 basis points in August to 3.62%. That move was catalyzed initially by the July CPI report, which was deemed better than feared, and secondarily by Fed Chair Powell's speech in Jackson Hole, where he acknowledged "the shifting balance of risks may warrant adjusting our policy stance."
What hasn't adjusted as much as the 2-yr note yield is the 10-yr note yield and the 30-yr bond yield. The former has declined 14 basis points in August to 4.22%, while the latter has increased three basis points to 4.91%.
The 2-yr note yield moving down faster than the 10-yr note yield and 30-yr bond yield is known in the Treasury market as a "bull steepener" trade. Today, we will unpack what that means while shedding light on some other esoteric trading terms applicable to yield curve dynamics.
Playing with "House Money"
A steeper yield curve, up to a point, is not a bad thing. Banks enjoy it since they borrow at short-term rates and lend at longer-term rates. Pension funds like higher long-term rates because they reduce the present value of their future liabilities. Fixed-income investors like a steeper yield curve since it allows them to lock in higher rates while taking on duration risk.
A steeper yield curve is often associated with a positive economic outlook because it is driven by expectations of lower interest rates that would be supportive for growth.
The short end of the curve is more reactive to changes in the fed funds rate than the long end, which is influenced more heavily by other forces like inflation and inflation expectations, the budget deficit and what that means for issuance, and the growth outlook.
It certainly hasn't escaped the market's eye that the yield curve is steepening at a time when inflation rates are closer to 3.0% than the Fed's 2.0% target. To be fair, long-term rates, which are more sensitive to inflation, have fallen this year despite all the hubbub about tariffs. The notable exception is the 30-yr bond. It is up 13 basis points this year to 4.91%.
The increase in the 30-yr bond yield has coincided with the rise in yields for longer-dated securities around the globe. That, too, is drawing some attention amid the tariff pressures and increased fiscal stimulus seen the world over.
Global stock markets, though, are at or near multi-year highs, if not all-time highs. That suggests equity investors aren't seeing a fundamental threat—not yet anyway—from where long-term rates stand. That is understandable here in the U.S. and for good reason.
The 10-yr note yield had climbed to 4.80% in mid-January, threatening a run at 5.00%, but it sits at 4.22% today. That is down 35 basis points since the start of the year, which is remarkable given the higher effective tariff rate now in play, the ongoing budget deficit, the weaker dollar, and the sticky inflation.
In a manner of speaking, then, the market has some "house money" to play with before long-term rates get to a point that truly spooks the stock market. It's a pretty comfortable dynamic right now with a normal sloping yield curve and a bull steepener trade that reflects a positive economic outlook more so than an inflation scare or deficit dustup.
A Bearish Development
An inflation scare or a deficit dustup would likely induce a "bear steepener" trade. That is a dynamic where the spread also widens, but because long-term rates rise faster than short-term rates.
That's not a good situation for the housing market, as mortgage rates are tied loosely to the 10-yr note yield. It's not a good condition for loan demand in general, given the higher cost of financing. It can also be a destabilizing situation for the stock market, given the competition posed by higher risk-free rates and the lower present value of future earnings stemming from the higher rates.
In turn, the velocity of a rate move can oftentimes be more unsettling than the level of rates, as it creates added angst around the move and certainly misgivings about the economic and earnings growth outlook.
The Flattener Trade
At this juncture, it may not surprise readers to hear that there is a "flattener" corollary to these steepener trades. They are aptly referred to as "bull flattener" and "bear flattener" trades.
The bull flattener is a product of long-term rates coming down faster than short-term rates, thereby leading to a narrowing of the yield spread. This dynamic is likely to unfold when market participants anticipate lower inflation or an adverse economic environment, like a recession.
If it is the latter, that is a bad setup for stocks (initially) since a fear of a recession or weak economic environment is bad for earnings prospects, but at the same time that would also invite expectations of rate cuts. It can be a particularly good circumstance for stocks if it is tied simply to inflation coming down since that, too, would invite rate cut expectations; meanwhile, lower long-term rates increase the present value of future earnings.
The "bear flattener" trade isn't the stock market's friend. This is a situation where short-term rates rise more than long-term rates, leading to a narrowing in the yield spread. This trade will likely take root if market participants are fearing higher inflation and/or an overheating economy that would lead the Fed to raise rates.
Short-term rates rising faster than long-term rates, and maybe even exceeding long-term rates (i.e., an inverted yield curve), isn't great for bank lending activity. Moreover, when the yield curve inverts, that is when recession alarm bells start ringing. History has shown on more than one occasion, though, that inversions can be false economic alarms; nonetheless, inverted yield curves typically lead to more cautious-minded investment activity.
Briefing.com Analyst Insight
These trades can happen on any given day, yet it is the shape of the yield curve over time that makes them resonate as a mover of capital markets given what they imply about the interest rate and economic outlook, both of which are intricately linked.
To recap:
- Bull steepener = short-term rates move down faster than long-term rates
- Bull flattener = long-term rates move down faster than short-term rates
- Bear steepener = long-term rates rising faster than short-term rates
- Bear flattener = short-term rates rise faster than long-term rates
The bulls are running right now in the stock market, and they are also running in the Treasury market with the bull steepener action. It is a good trend dynamic, but it is one that would turn less friendly if long-term rates start rising appreciably. That, too, would invite a steeper yield curve but with a different connotation (a bear steepener) wrapped up in concerns about inflation and/or the deficit.
That's not where the market's mind is at right now, and hopefully it won't have to go there. If it does, there will be less shine on the stock market outlook.
-- Patrick J. O'Hare, Briefing.com
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