Markets rally on Cisco earnings and Trump-Xi summit as bond yields challenge equity valuations
Investors weigh strong corporate results against widening valuation gaps between equities and treasuries, as geopolitical tensions in the Middle East and trade negotiations with China dominate the agenda.
US stock futures advanced on Thursday as investors digested a mixed bag of corporate results and geopolitical developments. The Dow Jones Industrial Average rose 0.4%, the S&P 500 edged up 0.2%, and contracts on the tech-heavy Nasdaq 100 climbed 0.4%, following a record-setting session for Wall Street stocks on Wednesday. Market sentiment was buoyed by Cisco’s strong quarterly performance, even as broader macroeconomic indicators highlight increasing pressure from rising bond yields.
Cisco shares soared more than 15% in premarket trading after the networking giant reported a fiscal fourth-quarter revenue outlook of $16.7 billion to $16.9 billion, significantly exceeding Wall Street expectations of roughly $15.8 billion. Chief Executive Chuck Robbins announced a restructuring plan to cut approximately 4,000 jobs, representing less than 5% of the workforce, to refocus the company on artificial intelligence capabilities.
The corporate optimism coincided with the commencement of a two-day summit in Beijing between US President Donald Trump and Chinese President Xi Jinping. The agenda centres on trade relations, artificial intelligence risk management, and the status of the Strait of Taiwan. Trump is accompanied by a delegation of prominent technology executives, including Elon Musk, Tim Cook, and Jensen Huang, signalling a strong focus on economic ties and technology cooperation.
During the summit, leaders agreed that the Strait of Hormuz must be reopened and remain free of militarisation or tolling. However, little progress was made on pressuring Iran to return to negotiations, with the White House having hoped for Beijing to leverage its influence. Xi Jinping responded to Trump’s appeal for greater market access by stating that China’s door to the outside world will only open wider, a message delivered during a meeting with US business representatives at the Great Hall of the People.
Despite strong earnings growth, valuation metrics suggest growing tension between equities and fixed income. The S&P 500’s realised earnings yield currently stands at approximately 3.4%, below the 10-year Treasury yield of near 4.5%. This creates a negative gap of roughly 110 basis points, the widest negative reading since 2003, indicating that bonds are competing more aggressively for investor capital even as stock profits accelerate.
Oil prices steadied ahead of the summit, with West Texas Intermediate trading near $101 a barrel and Brent crude closing below $106. Global oil inventories are shrinking at a record pace due to hostilities that began in late February, which have reduced the flow of crude through the Strait of Hormuz by nearly 6 million barrels per day. The International Energy Agency projects the market will remain severely undersupplied until October, regardless of whether the conflict resolves sooner.
