Weekly Wrap

With Independence Day right around the corner, the "One Big, Beautiful Bill," having passed a key procedural vote in the House after the Senate approved its version of the bill earlier in the week, looks destined to be signed into law by President Trump on July 4. That will put an end to the negotiating phase in Congress but not necessarily to the debate phase. Market participants (and the economy) will be digesting the implications of the bill for some time, but it is fair to say that neither the stock market nor the Treasury market are living in fear of deficit forecasts.

The fact of the matter today is that the S&P 500 and Nasdaq Composite are at record highs and the 10-yr note yield, at 4.35%, is 23 basis points lower from where it started the year. The CBO, for one, forecasts the bill will add $3.3 trillion to the deficit over the next decade. 

Treasury yields did go up this week. The 2-yr note yield increased 14 basis points to 3.88%, and the 10-yr note yield added six basis points to 4.35%. The bulk of those moves followed a better-than-expected employment report for June. That report was released before Thursday's open, and it featured a drop in the unemployment rate to 4.1% from 4.2% and a relatively solid 147,000 increase in nonfarm payrolls. Granted nonfarm private payrolls were up just 74,000, which falls to the softer side of things, along with the dip in the average workweek and the year-over-year pace in average hourly earnings growth. In sum, the June employment report could have been better, but it was not rate-cut bad.

The fed funds futures market subtracted the bulk of its budding expectations for a July rate cut following the report. According to the CME FedWatch Tool, the probability of a 25-basis point cut at the July FOMC meeting sits at just 4.7% now versus 23.8% the day before the report.

The employment report was the headliner for a busy day of economic reporting on Thursday, which wrapped up a fairly busy, albeit shortened week of trading. It also wrapped up an encouraging week of trading that included news of a trade deal with Vietnam and saw broad-based gains being led by the small-cap and mid-cap stocks, and value stocks outperform growth stocks.

To be fair, large-cap stocks and mega-cap stocks did well in their own right, too, just not as well as their smaller-sized brethren. Apple (AAPL) was an exception there, as it gained 6.2% this week, rallying on reports that it is considering using outside AI sources to help drive its new version of Siri. 

The Russell 2000 surged 3.4% this week, while the S&P Midcap 400 Index advanced 2.9%, versus a 1.7% gain for the market cap-weighted S&P 500. The equal-weighted S&P 500, for its part, jumped 2.4% as the "other 493" stocks found some rotational wind at their back to begin the third quarter.

The S&P 500 materials sector (+3.7%) topped the list of sector winners this week but it had ample company. Other outperformers included the information technology (+2.4%), financials (+2.4%), and energy (+2.1%) sectors, while the industrials sector (+1.7%) performed in line with the S&P 500. 

The only sector to lose ground was the communication services sector (-0.2%), which was pressured by a 2.0% decline in Meta Platforms (META) after the stock had rallied 53% off its April low coming into the week.

• Russell 2000: +3.4% for the week / +0.8% YTD
• S&P Midcap 400: +2.9% for the week / +2.3% YTD
• DJIA: +2.3% for the week / +5.4% YTD
• S&P 500: +1.7% for the week / +6.8% YTD
• Nasdaq: +1.6% for the week / +6.7% YTD

Monday:

The S&P 500 and Nasdaq Composite set record highs on Friday, and there was no stopping them from extending their reach into record territory today. For a moment, it looked like there might be some interference in that effort, yet a rush of buying interest in Apple (AAPL 205.17, +4.09, +2.03%) occurred in the afternoon session following a Bloomberg report that the company is considering using outside AI help to drive its new version of Siri.

Apple was trading just shy of $200 per share when that news hit but traded as high as $207.39 in its wake. That was a hefty load of market cap weight that ultimately fueled a move above 6,200 for the S&P 500 on the last trading day of a remarkable second quarter that saw the S&P 500 increase 10.6% and the Nasdaq Composite gain 17.8%. Those gains, though, don't even tell half the story. From their lows on April 7, the S&P 500 and Nasdaq Composite are up 28% and 38%, respectively.

Prior to the Apple news, today's session was filled with political news that was generally interpreted in a positive light.

The Senate passed a procedural vote over the weekend that paved the way for a full Senate vote late tonight or early tomorrow on its version of the "One Big, Beautiful Bill." That bill, among other things, will extend the 2017 tax cuts for all income levels and make those cuts permanent; it starts Medicaid work requirements beginning in December 2026, phases out solar and wind tax credits beginning in December 2026, raises the SALT deduction cap to $40,000 for people making $500,000 or less for a 5-year period, after which it reverts to $10,000, and increases the debt ceiling by $5 trillion.

If the Senate passes the bill, which the CBO estimates will add $3.3 trillion to the deficit over the next decade, it will head to the House for review and set up the possibility of it being on the president's desk for signing by July 4. The comforting point for the stock market in all this was that the Treasury market didn't revolt over the CBO estimate. In fact, the Treasury market staged a minor rally that saw gains across the curve led by longer-dated maturities.

The 2-yr note yield dipped two basis points to 3.72%, and the 10-yr note yield dropped six basis points to 4.23%. Running alongside the developments pertaining to the "One Big, Beautiful Bill" were reports highlighting Canada's efforts to renew negotiations with the U.S. by dropping its digital services tax and speculation that other trade deals, including the possibility of one with the EU, could be announced soon.

Separately, it was welcome news for the capital markets to hear that the largest banks all passed the Federal Reserve's stress test. That news was released after Friday's close, and it paves the way for banks to announce capital return plans.

The investment banks, led by Dow component Goldman Sachs (GS 707.75, +16.94, +2.45%) reaching a record high of its own, paced the gains in the financials sector (+0.9%). The only other sector performing better than the financials sector today was information technology (+1.0%), which rallied around Apple and the AI trade tied to encouraging commentary out of Oracle (ORCL 218.63, +8.39, +3.99%) for its cloud business. For the quarter, the information technology sector gained 23.5%.

Most sectors ended higher today. The only two laggards were the consumer discretionary (-0.9%) and energy (-0.7%) sectors.

Reviewing today's data:

• June Chicago PMI (Actual 40.4; Briefing.com consensus 43.4; prior 40.5)

Tuesday:

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.

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)

Wednesday:

The S&P 500 closed at a new record high today, enjoying a steady ride higher throughout today's session despite a disappointing ADP Employment Change Report, which showed a loss of 33,000 jobs for private-sector payrolls in June. That news was overshadowed by the president announcing a trade deal with Vietnam that includes a zero tariff rate for U.S. access to Vietnamese markets, solid gains in several mega-cap stocks, and ongoing leadership in the small-cap and mid-cap spaces.

Tesla (TSLA 315.65, +14.94, +4.97%), which reported better-than-feared Q2 delivery numbers; Apple (AAPL 212.44, +4.62, +2.22%), which was upgraded to Hold from Underperform at Jefferies; and NVIDIA (NVDA 157.25, +3.95, +2.58%) and Alphabet (GOOG 179.76, +2.85, +1.61%), which were riding AI-related momentum, were the mega-cap leaders.

Their influence underpinned the market cap-weighted S&P 500 (+0.5%), which had a solid outing but nonetheless found itself looking up again at the Russell 2000 (+1.3%) and S&P Midcap 400 Index (+1.0%), which remained beneficiaries of rotational interest.

Like yesterday, today's buying interest was broad-based. Advancers led decliners by a better than 2-to-1 margin at the NYSE and Nasdaq.

The advancers did not include health insurer Centene (CNC 33.78, -22.86, -40.37%), which got pummeled after withdrawing its guidance following its first view analysis of 2025 industry Health Insurance Marketplace data from Wakely. Centene expects an adjusted diluted EPS impact of approximately $2.75 for FY25 based on the analysis. Other health insurance stocks traded lower in sympathy and were the drivers of the health care sector's (-1.0%) underperformance.

The financials sector (-0.1%) also trailed today's action, even though many of the nation's largest banks announced plans to increase their dividend and/or repurchase stock after passing the Federal Reserve's annual stress test.

Today's best-performing sectors were the energy (+1.7%), materials (+1.3%), and information technology (+1.3%) sectors.

Turning back to the ADP report, it was a disappointment, but market participants reserved judgment on its meaning, cognizant that they will get a more comprehensive view of the labor market with the release of the June Employment Situation Report before Thursday's open and that the ADP data doesn't always move in line with the government's data.

Speaking of the government, the "One Big, Beautiful Bill" remained stuck in the House, with some press reports suggesting there is dissension in the GOP ranks over its cost, holding up its passage. There is still a prevailing view that the bill will pass, even though its passage might be delayed beyond the president's wish to have it on his desk for signing by July 4.

As a reminder, the stock market will close at 1:00 p.m. ET Thursday in advance of the Independence Day holiday on Friday.

Thursday:

The stock market opened to gains following a better-than-expected June Employment Situation Report just before the opening bell, and carried this momentum through today's trading session that saw the S&P 500 (+0.8%) and the Nasdaq Composite (+1.0%) eclipse and close at fresh record highs.

Equity futures were relatively flat in anticipation of the employment data release, but rose sharply after a decrease in unemployment, a decrease in initial jobless claims, and an increase in non-farm payrolls was reported.

The jobs report did feature some points of weakness, namely the participation rate coming down, the percentage of employees unemployed for 27 weeks or more going up, and average weekly hours dipping to 34.2 from 34.3.

However, the market largely overlooked these figures and cruised to new record highs throughout the session.

The optimistic employment data did stifle hopes of a July rate cut, with the fed funds futures market pricing in only a 4.7% probability of a 25 basis-point cut at the July meeting versus 23.8% a day ago, according to the CME FedWatch Tool. Atlanta Fed President Raphael Bostic (non-voting FOMC member) told CNBC the U.S. economy could still experience a long period of elevated inflation from tariffs. Bostic supported the Fed's "wait and see" approach and acknowledges that while the labor market remains healthy, hiring pace has slowed.

Treasury yields remained elevated in reaction to today's economic data and diminishing rate cut hopes, with the 10-year note yield rising five basis points to 4.35% and the 2-year note yield climbing ten basis points to 3.89%.

The stock market remained undeterred, with ten sectors finishing in the green in a day that saw advancers outpace decliners by a better than 2:1 ratio on both exchanges.

While the participation was broad based, the technology sector (+1.1%) led the advance, bolstered by news that the Trump administration had rescinded its restrictions on the export of chip design software to China. Chip software development companies Synopsys (SNPS 547.00, +23.89, +4.6%) and Cadence Design (CDNS 327.00, +16.00, +5.2%) captured nice gains in response to the development.

The strong performance from the technology sector contributed to the strong performance of mega-cap stocks as a whole, with the Vanguard Mega Cap Index (+1.1%) outpacing the S&P 500 (+0.8%) for the second consecutive day.

Reviewing today's economic data:

• June Nonfarm Payrolls 147K (Briefing.com consensus 120K); Prior was revised to 144K from 139K, June Nonfarm Private Payrolls 74K (Briefing.com consensus 123K); Prior was revised to 137K from 140K, June Unemployment Rate 4.1% (Briefing.com consensus 4.2%); Prior 4.2%, June Avg. Hourly Earnings 0.2% (Briefing.com consensus 0.3%); Prior 0.4%, June Average Workweek 34.2 (Briefing.com consensus 34.3); Prior 34.3
  • The key takeaway, though, is that it wasn't weak enough to convince the market that a rate cut at the July FOMC meeting is squarely on the table. On the contrary, that is looking more like a remote possibility, with the fed funds futures market pricing in only a 4.7% probability of a 25 basis-point cut at the meeting versus 23.8% a day ago, according to the CME FedWatch Tool.
• May Trade Balance -$71.5 bln (Briefing.com consensus -$70.5 bln); Prior was revised to -$60.3 bln from -$61.6 bln
  • The key takeaway from the report is that it will factor in as a negative for the net exports contribution to Q2 GDP.
• Weekly Initial Claims 233K (Briefing.com consensus 240K); Prior was revised to 237K from 236K, Weekly Continuing Claims 1.964 mln; Prior was revised to 1.964 mln from 1.974 mln
  • The key takeaway from the report is the same as before: businesses are not busily laying off workers, but it has become more challenging for workers who have been laid off to find a new job.
• June S&P Global U.S. Services PMI - Final 52.9; Prior 53.7
• May Factory Orders 8.2% (Briefing.com consensus 7.9%); Prior was revised to -3.9% from -3.7%
  • The key takeaway from the report is that business spending picked up markedly in May, reflecting the improved activity that followed the pause on reciprocal tariffs announced in April and the subsequent de-escalation in the U.S.-China tariff measures.
• June ISM Services 50.8% (Briefing.com consensus 50.3%); Prior 49.9%
  • The key takeaway from the report is that services sector activity returned to growth mode, albeit a growth mode that is still modest at best, while the prices index dipped slightly from May. This is not a report exuding a lot of strength for the largest economic sector, but the direction of travel between May and June (up in activity and down in prices) marks a step in the right direction.