Stock Market Update

[BRIEFING.COM] Today was the first trading day of the third quarter, and it belonged to the broader market. Small-cap stocks, mid-cap stocks, value stocks, and the "other 493" stocks in the S&P 500 assumed a leadership position, while many of the mega-cap stocks and growth stocks bowed out of today's gains.

The tape had vestiges of rebalancing activity within the stock market. Those efforts were helped along by some optimism about the growth outlook that stemmed from the JOLTS Report showing a sizable increase in job openings in May, the ISM Manufacturing Index showing a slower pace of contraction in June, and the Senate passing its version of the "One Big, Beautiful Bill" in a 51-50 vote that came courtesy of Vice President Vance casting the tiebreaking vote.

This bill has been passed back to the House, which will begin debate at 9:00 a.m. ET on Wednesday, according to House Majority Whip Emmer. A vote will occur after that debate ends, setting up the possibility that the president could have the bill on his desk for signing by July 4.

The Treasury market took in these developments and others with some reservations, thinking they might at least forestall a rate cut in July. The other developments included an observation from Fed Chair Powell at an ECB Forum on Central Banking that the Fed would have likely cut rates already if not for the size of the tariffs that were announced and a Bloomberg TV report that the president isn't thinking about extending the tariff pause past July 9. There were also rumblings from the president that the U.S. isn't likely to make a deal with Japan.

The 2-yr note yield jumped five basis points to 3.77%, while the 10-yr note yield rose only two basis points to 4.25% in a curve-flattening trade.

Today's rebalancing effort in the stock market manifested itself in the outperformance of the equal-weighted S&P 500 (+1.2%) versus the market cap-weighted S&P 500 (-0.1%), which was pressured by losses in Tesla (TSLA 300.71, -16.95, -5.34%), NVIDIA (NVDA 153.29, -4.70, -2.97%), Meta Platforms (META 719.22, -18.87, -2.56%), Microsoft (MSFT 492.05, -5.36, -1.08%), and Alphabet (GOOG 176.91, -0.48, -0.27%).

Tesla's poor showing was exacerbated by concerns over Elon Musk's strong objections to the passage of the "One Big, Beautiful Bill" and the president suggesting that the government might need to look at cutting subsidies for his companies.

The problems for Tesla did not derail the S&P 500 consumer discretionary sector (+0.2%), which was bolstered by the gain in Amazon (AMZN 220.46, +1.07, +0.49%) and strong gains among the casino stocks after an encouraging gross revenue report out of Macau for the month of June.

Today's best-performing sectors were the materials (+2.3%), health care (+1.4%), energy (+0.8%), and consumer staples (+0.8%) sectors. The only two sectors losing ground were communication services (-1.2%) and information technology (-1.1%). The latter would have been down more if not for the strength shown by Apple (AAPL 207.82, +2.65, +1.29%).

Breadth figures conveyed the broad-based buying interest under the index surface. Advancers led decliners by a 3-to-1 margin at the NYSE and by a roughly 5-to-4 margin at the Nasdaq.

• S&P 500: +5.4% YTD
• Nasdaq: +4.6% YTD
• DJIA: +4.5% YTD
• S&P 400: +0.6% YTD
• Russell 2000: -1.6% YTD

Reviewing today's data:

• The June ISM Manufacturing Index increased to 49.0% in June (Briefing.com consensus 48.8%) from 48.5% in May. The dividing line between expansion and contraction is 50.0%, so the June reading suggests that activity in the manufacturing sector contracted at a slightly slower pace than the prior month.
  • The key takeaway from the report is that it has more of a stagflation aura about it (the new orders index and employment index both contracted at a faster pace, while the prices index increased at a faster pace) that will make the Fed's policy deliberations more challenging and the market's view of the Fed's thinking more frustrating.
• Total construction spending decreased 0.3% month-over-month in May (Briefing.com consensus -0.2%) after an upwardly revised 0.2% decline (from -0.4%) in April. Total private construction was down 0.5% month-over-month, while total public construction was up 0.1% month-over-month. On a year-over-year basis, total construction spending was down 3.5%.
  • The key takeaway from the report is the same as the prior month: a downturn in new single-family construction, which is being pressured by higher costs, was the driver behind the weakness in residential spending.
• May JOLTS - Job Openings increased to 7.769 million from an upwardly revised 7.395 million (from 7.391 million). The increase in job openings connotes a labor market that is still on relatively sound footing, which would leave the Fed reluctant to cut rates if inflationary pressures aren't contained.
• June S&P Global U.S. Manufacturing PMI - Final (Actual 52.9; prior 52.0)