U.S. stock futures climbed Wednesday amid optimism following a new trade agreement between the United States and Japan. The White House described the pact, which imposes a lower tariff rate on Japanese imports than originally announced by President Donald Trump, as “massive.” Attention now turns to a wave of corporate earnings, with tech giants Alphabet (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA) set to report after the market closes. Meanwhile, shares of Texas Instruments (NASDAQ:TXN) fell as its quarterly profit forecast disappointed investors.
Futures rally
By 03:38 ET, Dow futures had gained 137 points (0.3%), S&P 500 futures added 17 points (0.3%), and Nasdaq 100 futures rose 26 points (0.1%). Wall Street finished mixed on Tuesday as investors digested several earnings reports.
General Motors (NYSE:GM) shares fell sharply after the automaker reported a second-quarter profit decline of over one-third, driven in large part by $1 billion in costs related to Trump’s tariffs.
Despite this, optimism around major investments in artificial intelligence supported some of the largest tech names. Alphabet and Tesla’s upcoming earnings will be key indicators of market sentiment.
Trade developments remain in focus with an August 1 deadline looming for Trump’s increased “reciprocal” tariffs.
Details of the trade agreement
President Trump announced a “massive deal” with Japan that includes a 15% tariff on Japanese imports, down from the initially proposed 25%.
He also revealed that Japan will invest $550 billion into the U.S., with America “receiving 90% of the Profits.”
“Japan will open their Country to Trade including Cars and Trucks, Rice and certain other Agricultural Products, and other things. Japan will pay Reciprocal Tariffs to the United States of 15%,” Trump said on social media.
This agreement, among the most significant since Trump’s tariff announcements in April, followed reports of a meeting between Japan’s top trade negotiator Ryosei Akazawa and Trump at the White House.
Although the 15% tariff is lower than initially planned, it contradicts Japan’s earlier request for a full exemption from U.S. tariffs.
Capital Economics analysts noted, “The trade deal with the U.S. announced today removes a key downside risk to Japan’s economy. We estimate that the net effect of today’s announcement will be a reduction in the average tariff rate faced by Japanese exporters in the U.S. of around one percentage point.”
Earnings spotlight: Alphabet and Tesla
Investors are gearing up for earnings reports from Alphabet and Tesla, the first of the “Magnificent 7” tech giants to announce second-quarter results.
Particular attention will be paid to Alphabet’s AI strategy, following its recent commitment to heavy investments in the technology. Investors want reassurance that this spending will protect Google’s core search and advertising business from AI competitors.
Vital Knowledge analysts said, “For Google, sentiment is very mixed, with bears worried about the secular outlook for search as AI chatbots capture share and regulatory [slash] legal pressures while bulls emphasize compelling secular tailwinds in many key markets and a relatively cheap valuation.”
Tesla faces pressure amid rising competition that has hurt sales in its core auto segment. Year-over-year deliveries have dropped, and new challenges may arise following Trump’s recent law that eliminated solar and electric vehicle tax credits.
Nonetheless, hopes remain that Tesla can generate new revenue from robotics and autonomous driving ventures. Vital Knowledge added that anticipation around these areas has kept Tesla shares “beyond where it should trade based exclusively on auto fundamentals alone.” Tesla’s stock is down more than 12% this year.
Texas Instruments reports strong results, shares dip
Texas Instruments beat expectations with solid Q2 earnings thanks to stronger industrial demand. Still, shares slipped in after-hours trading as investors worried about the outlook for its analog chip unit.
Revenue rose 16% year-over-year to $4.45 billion, near the top of guidance and above analyst estimates of $4.35 billion.
EPS was $1.41, including a 2-cent benefit not included in earlier guidance.
Revenue grew 9% sequentially, led by a “continued broad recovery” in the industrial segment. Net income was $1.30 billion.
For Q3, Texas Instruments forecasts revenue between $4.45 billion and $4.80 billion and EPS from $1.36 to $1.60. Analysts had expected $4.59 billion in revenue and $1.49 EPS.
Though not yet directly affected by tariffs, rising chip manufacturing costs have caused some customers to cut back spending. CEO Haviv Ilan said on a post-earnings call that recovery in the automotive sector has been “shallow,” as tariffs and geopolitics “disrupt and reshape” supply chains.
Gold prices ease
Gold prices pulled back slightly after recent gains as the U.S.-Japan trade deal boosted risk appetite, reducing some of gold’s safe-haven allure.
Still, gold remains less than $100 below its April record high amid lingering uncertainty over Trump’s tariffs.
Ahead of a critical Federal Reserve meeting, cautious trading kept gold supported even as the dollar retraced recent gains.
Spot gold dipped 0.2% to $3,426.80 per ounce, with futures down 0.1% to $3,440.70 by 03:38 ET.
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