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The market cap-weighted S&P 500 declined 0.1% yesterday, but it was quite a good day for the broader market. The mega-cap stocks were the primary drag on the S&P 500, yet the "other 493" stocks did well, evidenced by the 1.1% gain in the equal-weighted S&P 500. Small-cap stocks and mid-cap stocks also did well, and value stocks outperformed the growth stocks.
It was a rebalancing trade that should perhaps come as no surprise given the large performance imbalance between the mega-cap stocks and growth stocks during the second quarter recovery effort and the rest of the market.
Currently, the equity futures market isn't showing much zest. The S&P 500 futures are down eight points and are trading 0.1% below fair value, the Nasdaq 100 futures are down 63 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 40 points and are trading fractionally below fair value.
That lackluster disposition is part and parcel a reflection of market participants waiting to see if the mega-cap stocks continue on a consolidation track. Most are weaker in pre-market action, but not Apple (AAPL), which is up another 0.9% as investors continue to key on the prospect of Apple improving its AI game by using outside sources to drive its new version of Siri. Additionally, Jefferies upgraded the stock today to Hold from Underperform.
Tesla (TSLA) is another outlier, rallying 6.0% after reporting some better-than-feared delivery figures for Q2.
There is also some hesitation with the fate of the "One Big, Beautiful Bill" in the House's hands after the Senate approved its version yesterday in a 51-50 vote, with Vice President Vance casting the tiebreaking vote. There is some chatter that Speaker Johnson doesn't have enough support yet among House GOP members, only three of whom can vote no if the Democrats have a party-line no vote.
It is Speaker Johnson's intention to hold a House vote today or tomorrow, with an expectation that it will pass and arrive on the president's desk for signing by July 4. That is a stretch goal, according to some press reports highlighting objections to the Senate's version of the bill, yet the default view remains that the bill will pass, but perhaps after July 4.
Aside from that important fiscal dealing, market participants are also keying on monetary policy considerations. The ADP Employment Change Report for June was not a good report. Private sector employment shed 33,000 jobs (Briefing.com consensus: 97,000), with the service-providing sector (-66,000) accounting for the decline and small business jobs (-47,000) bearing the brunt of the losses. The goods-producing sector added 32,000 positions.
The more comprehensive Employment Situation Report for June will be released ahead of tomorrow's open. Accordingly, the market is apt to reserve stronger judgment on this less-than-encouraging number, mindful that the ADP data doesn't always move in line with the government's data.
The 2-yr note yield dipped from 3.80% ahead of the release to its current level of 3.77%, unchanged from yesterday's settlement. The 10-yr note yield fell from 4.30% to 4.27% but is back at 4.29%, up four basis points from yesterday's settlement. The probability of a 25 basis-point rate cut at the July FOMC meeting has increased to 25.3% from 20.7% a day ago, according to the CME FedWatch Tool.
The high probability of many banks announcing capital return plans after successfully passing the Fed's stress test results has now turned into a 100% certainty. JPMorgan Chase (JPM), Goldman Sachs (GS), Morgan Stanley (MS), Bank of America (BAC), and Wells Fargo (WFC) all communicated plans to increase their dividend and/or share repurchase activity.
Health insurance provider Centene (CNC), meanwhile, communicated that it is withdrawing its guidance after analyzing its first view of 2025 industry Health Insurance Marketplace data from Wakely. Centene expects an adjusted diluted EPS impact of approximately $2.75 based on the analysis. Shares of CNC are down 31% in pre-market trading, and other health insurance stocks are falling in sympathy.
