Slowing Imports Cause 2Q GDP to Jump +3.0%; Earnings Reports Skewed by Tariff Concern; Fed Likely to Keep Rates on Hold

Following a series of second quarter earnings reports that were either short of expectations or came with lowered forward guidance, stocks slumped Tuesday, as investors measured the recent rally against the reality of corporate earnings. Some of the companies that reported poor results Monday night and Tuesday morning included Whirlpool (WHR), which finished Tuesday's session down 13 percent; Boeing (BA, -4.37%); Merck (MRK, -1.70%); Spotify (SPOT, -11.55%); United Health (UNH, -7.46%); and UPS (UPS, -10.57%).

The major indices - Dow, NASDAQ, S&P, NYSE Composite - all ended Tuesday's session on the downside.

Leading into Wednesday, the CME FedWatch shows a 97.9% probability of the FOMC keeping the federal funds target rate unchanged at 4.25-4.50% when the policy decision is announced at 2:00 pm ET later today.

Prior to that (non) event, the BEA released the initial estimate of second quarter GDP, which showed the U.S. economy expanding at a rate of three percent (3.0%). The increase in real GDP in the second quarter primarily reflected a decrease in imports, which are a subtraction in the calculation of GDP. Thus, slowing imports, due to tariff issues, actually skewed the numbers in a positive direction. In the first quarter, higher imports, as companies rushed to beat expected tariffs, caused GDP to decline by 0.5%.

Essentially, GDP has become an almost useless tool for measuring the strength of the economy, as it can be pushed in various directions by extraneous factors.

Additionally, earnings reports from Visa (V), Caesars Entertainment (CZR), Teradyne (TER), Cheesecake Factory (CAKE), Seagate (STX), Booking Holdings (BKNG)

Wednesday (7/30): (before open) Altria (MO), Teva Pharmaceuticals (TEVA), Harley Davidson (HOG), Etsy (ETSY) Generac (GNRC), Humana (HUM), KraftHeinz (KHC), Hershey (HSY).

Visa (V) beat estimates but issued flat guidance, sending shares down a little more than one percent in the pre-market.

Caesars Entertainment (CZR) showed declining Las Vegas revenue and has shares slipping more than three percent leading into the open.

Teradyne (TER) beat top and bottom, but guided cautiously. Nonetheless, shares have powered ahead by more than seven percent pre-market.

Cheesecake Factory (CAKE) beat earnings forecasts, but is trading down four percent early Wednesday.

Seagate (STX) issued a forecast that cooled investors, sending the stock down nearly six percent in pre-market trading.

Booking Holdings (BKNG) was another that issued a less-than-enthusiastic forward outlook. The stock was down mroe than three percent, but is seen as opening flat to slightly higher.

Harley Davidson (HOG) shares are rallying on a potential deal for their finance unit, overshadowing downbeat Q2 results. The stock is up some 15 percent in the pre-market.

Humana (HUM) showed improving results and strong revenue, plans to offer early retirement to some workers and issued positive guidance, sending share higher by more than 10 percent.

KraftHeinz (KHC) topped second quarter estimates and reaffirmed forward guidance on steady U.S. demand. Shares are mostly flat before the opening bell.

Hershey (HSY) topped Q2 results, but lowered EPS forecast citing tariff pressures and is raising the price on chocolate products as cocoa prices have soared. Apparently, expensive candy bars are just what Americans want, as the stock is being bid higher by 4.5% pre-market.

With the GDP estimate based almost entirely on declining imports and the Fed almost certain to keep interest rates on hold, Wednesday's trading might not be as volatile as some had expected. Of course, a rip-your-face-off short squeeze melt-up is always a possibility.

At the Close, Tuesday, July 29, 2025:
Dow: 44,632.99, -204.57 (-0.46%)
NASDAQ: 21,098.29, -80.29 (-0.38%)
S&P 500: 6,370.86, -18.91 (-0.30%)
NYSE Composite: 20,761.56, -59.72 (-0.29%)