Happy Tuesday afternoon to everyone on The Street. Here's a snapshot of where markets ended the trading session, plus tomorrow's trade idea delivered to you today.

• 🟩 | US Stocks Rose on Tuesday. The Dow surged 742 points, nearly 2%, marking the index’s best day in over a year.

• 📈 | One Notable Gainer: State Street’s stock popped 7% after posting records for both assets under control and under management, in addition to quarterly profit and sales that beat estimates.

• 📉 | One Notable Decliner: Shares of Charles Schwab tumbled 10% after reporting earnings and revenue that just barely beat estimates. Schwab management also revealed that it is shrinking its banking business to “protect the economics we’re able to generate from owning a bank.”

• ✂️ | Tomorrow's Trade: A Downside to Rate Cuts. Scroll down for more.

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YESTERDAY’S POLL RESULTS

Which stock do you think will jump more following its earnings report?

🟩🟩🟩🟩🟩🟩 Ally Financial (ALLY)

🟨🟨🟨🟨⬜️⬜️ D.R. Horton (DHI)

MARKET MOVERS

Reddit, EPAM Systems, & PNC

RDDT (-3%) Reddit’s stock fell after a Loop Capital analyst downgraded it from Buy to Hold over concerns of coming selling pressure (Barron’s)

EPAM (+5%) Shares of EPAM Systems popped after Jeffries upgraded the stock to Buy, claiming it will benefit from AI demand (Investopedia)

PNC (+5%) PNC Financial’s stock surged after reporting second-quarter earnings and revenue that beat analysts’ estimates (Reuters)

DFH (+9%) Shares of Dream Finders Homes shot higher after Oppenheimer disclosed a $1.6 million stake in the company (MB)

RTNTF (-1%) Rio Tinto’s stock slid after its iron ore shipments missed estimates due to a train derailment that occurred in May (BW)

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OVERHEARD ON THE STREET

Bloomberg: General Motors CEO Mary Barra walked back her company’s one million EV production goal, citing a lack of capacity to reach the target.

WSJ: US mattress manufacturers claim Chinese sellers are dumping cheap bedding through third countries into the US.

BI: Microsoft laid off a DEI team, and its lead wrote an internal email blasting how DEI is “no longer business critical.”

NPR: Dollar General has agreed to pay $12 million in penalties and improve safety at its nearly 20,000 stores across the US.

Bloomberg: A group of Houston restaurants is suing CenterPoint Energy after losing power for days following Hurricane Beryl.

TOMORROW’S TRADE IDEA, TODAY

A Downside to Rate Cuts

Short-Term Problems

Higher-for-longer interest rates are starting to take a toll on big banks. Deposit costs are up, and customers are wary of taking out high-cost loans.

It may finally be time for the Fed to start cutting rates, and while this should benefit banks over the long term, it may hurt them early on.

Diminished Earnings

Lower rates typically encourage borrowing and dealmaking while lowering the interest banks offer on financial products like CDs and HYSAs. 

The first few rate cuts are expected to be small, probably not enough to substantially impact lending. They might mainly diminish banks’ earnings from interest. And depositors’ demand for strong returns on their cash isn’t going away.

To Be Determined

On the bright side, an increase in Wall Street dealmaking in response to lower rates could be a tailwind for banks in the form of fee income. Lower rates could also increase the value of banks’ securities holdings. 

However, the extra capital probably couldn’t be deployed right away. The future of rate cuts and big banks’ performance in response is yet to be seen. For that reason, some analysts are suggesting a “wait and see” approach to bank stocks.

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ON OUR RADAR

Axios: President Biden is expected to propose capping national rent increases at 5% at an event in Las Vegas today.

CNBC: A Senate probe found that Amazon’s Prime Day is a “major” cause of worker injuries.

BBC: A Pew survey found that 94% of Americans are at least somewhat concerned about rising food and consumer goods prices.

CBC: According to Statistics of Canada, 38% of young adults aged 20 to 29 do not believe they can afford to have a child in the next three years.

Reuters: Elon Musk plans to give $45 million a month to a new pro-Trump super political-action committee.