Weekly Wrap

There was a lot of drama in the market this week, the most prominent of which was the reconciliation bill feud between Elon Musk and President Trump that blew up on Thursday, triggering a 14.3% decline in Tesla's stock price. Fortunately, none of that really derailed the stock market, which enjoyed another winning week behind the leadership of the small-cap stocks and mega-cap stocks.

There were a lot of gains to go around, however, with NVIDIA (NVDA) and the semiconductor stocks pacing the pack. The week ended on a high note, too, as the S&P 500 reclaimed the 6,000 level in the wake of a pleasing employment report for May. It did so with Treasury yields rising sharply, suggesting perhaps that some rebalancing out of bonds and into stocks might have been providing a tailwind.

In any case, the stock market did not look overly concerned on Friday as the 10-yr note yield rose to 4.51%. The May employment report was a welcome end to a week that was filled with notable macro developments:

• OPEC+ agreed to raise production by 411,000 barrels per day in July.
• The OECD downgraded its 2025 global GDP growth forecast to 2.9% from 3.1% and its U.S. GDP growth forecast to 1.6% from 2.2%.
• President Trump said that President Xi is "very tough, and extremely hard to make a deal with." That view preceded a phone call between the two leaders, a summary of which sounded more conciliatory than combative and included an agreement to have their respective trade teams meet again soon.
• The ADP Employment Change Report for May indicated that there were only 37,000 jobs added to private-sector payrolls (Briefing.com consensus 115,000) and none for small businesses, which lost 13,000 jobs.
• The ISM Services PMI for May printed a contractionary reading (49.9%) for only the fourth time in the last 60 months.
• Elon Musk decried the one big, beautiful bill on social media and urged lawmakers to "kill the bill."
• The European Central Bank voted to cut its key interest rates by 25 basis points, as expected, and officials suggested that might be the end of the rate cuts.
• The trade deficit plunged in April to $61.6 billion (Briefing.com consensus: -$117.2 billion) from an upwardly revised deficit of $138.3 billion (from -$140.5 billion) in March. Exports were $8.3 billion more than March exports, but imports were $68.4 billion less than March imports.
• President Trump said his top trade representatives, who include Treasury Secretary Bessent, Commerce Secretary Lutnick, and U.S. Trade Representative Greer, will meet Monday in London with representatives from China in reference to the trade deal.
• The May employment report was better than feared and also, frankly, good enough to lend confidence to the idea that the U.S. economy has enough labor market footing to remain on a growth trajectory.

The communication services (+3.2%), information technology (+3.0%), and energy (+2.2%) sectors were the best-performing sectors this week. The consumer staples (-1.6%), utilities (-1.1%), and consumer discretionary (-0.6%) sectors were the only sectors that did not show a gain for the week.

Monday:

The stock market got hit with a few jabs early, but once again showed that it has plenty of fight in it, with the mega-cap stocks acting as the enforcer. Meta Platforms (META 670.90, +23.41, +3.6%), which is reportedly planning full, AI-generated ads by 2026, according to The Wall Street Journal, and NVIDIA (NVDA 137.38, +2.25, +1.7%), which remains the go-to AI play, were today's ringleaders.

The Vanguard Mega-Cap Growth ETF (MGK) advanced 0.9% versus the Invesco S&P 500 Equal-Weighted ETF (RSP), which was up 0.1% for the day.

The early hits flowed from the weekend news that the U.S. will be doubling the tariff rate for steel and aluminum imports to 50%, effective Wednesday, and China's pugilist stance that it was the U.S. that violated the preliminary trade agreement reached in Geneva.

That combination put the market on its heels, contemplating the potential for higher inflation stemming not only from the tariff increase but also from the potential for ongoing supply chain disruptions.

The market cap-weighted S&P 500 declined 0.9% shortly after the open but just as quickly started to rebound following the release of a better-than-feared ISM Manufacturing PMI for May at 10:00 a.m. ET and a CNBC report that President Trump and President Xi are likely to speak this week. Later, Reuters, citing a U.S. Trade Representative draft letter, carried a report saying the Trump administration is seeking best offers from countries by Wednesday for trade negotiations.

By and large, it was a one-way trade higher from the time of the ISM report, with the S&P 500 and Nasdaq Composite stairstepping their way to successive highs. Both basically closed at their highs for the session.

Something notable about the move, other than it taking place on relatively light volume, is that it happened at the same time Treasury yields were pressing higher behind selling interest. The turnaround by the stock market, then, may have been helped by some asset reallocation out of bonds and into stocks.

We would venture a guess that it was also helped by short-covering activity and the squeezing in of sidelined investors sitting on a lot of cash, as the market's continued resilience left them fearful about missing out on further gains.

Ten of the 11 S&P 500 sectors finished higher. The energy sector (+1.2%) was the biggest gainer, aided by a nice pop in oil prices ($62.57, +1.81, +3.0%) after OPEC+ agreed to raise production by 411,000 barrels per day in July. Traders had been worried that the output hike could be much larger.

The information technology sector (+0.9%) was second in command today, lending its weight to the broader market along with the communication services sector (+0.6%). The industrials sector (-0.2%) was the only sector that gave up some ground.

Market breadth substantiated the somewhat narrow nature of today's gains. Decliners outpaced advancers by a roughly 5-to-4 margin at the NYSE, while advancers led decliners by a narrow margin at the Nasdaq.

Reviewing today's data:

• The May ISM Manufacturing Index slipped to 48.5% in May (Briefing.com consensus 49.0%) from 48.7% in April. The dividing line between expansion and contraction is 50.0%, so the May reading suggests that activity in the manufacturing sector contracted at a slightly faster pace than the prior month.
  • The key takeaway from the report is that manufacturing sector activity was hampered in May by tariff uncertainty.
• Total construction spending decreased 0.4% month-over-month in April (Briefing.com consensus 0.1%) after a downwardly revised 0.8% decline (from -0.5%) in March. Total private construction was down 0.7% month-over-month, while total public construction was up 0.4% month-over-month. On a year-over-year basis, total construction spending was down 0.5%.
  • The key takeaway from the report is that residential spending weakened noticeably with a downturn in new single-family construction.

Tuesday:

The stock market got on a winning track this morning and it showed little intention of getting off it once it did, largely dismissing an afternoon contention from Elon Musk that the "one big, beautiful bill" is a "disgusting abomination" since it will massively increase the budget deficit. Small-cap stocks, mega-cap stocks, and semiconductor issues led today's gains, which had some grounding in growth optimism and continued backing from momentum buyers.

Today's start was a bit sluggish, with some consolidation interest in the air. The indices gained some traction around 10:00 a.m. ET, however, following an April JOLTS - Job Openings Report that showed a pickup in openings.

That was viewed as a good indication for the labor market, which conveyed some encouraging thoughts about the growth outlook in spite of the OECD downgrading its 2025 global GDP growth forecast to 2.9% from 3.1% and its U.S. GDP growth forecast to 1.6% from 2.2% and China's Caixin Manufacturing PMI for May registering its weakest reading (48.3) since 2022.

Today's best-performing sector was the information technology sector (+1.5%), which was led by NVIDIA (NVDA 141.40, +4.02, +2.9%) and the semiconductor stocks. The energy sector (+1.1%) was next in line, followed by the materials (+1.0%) and industrials (+0.8%) sectors, exposing today's pro-cyclical orientation.

The Russell 2000 (+1.6%), led by its banking and energy components, outpaced the other major indices. Today's buying efforts, though, were broad-based.

Advancers led decliners by a better than 2-to-1 margin at the NYSE and Nasdaq. Like yesterday, today's advance unfolded on below-average trading volume at the NYSE and Nasdaq.

Separately, Treasuries were little changed from Monday's settlement levels but saw some intraday movement. The 10-yr note yield, which dipped below 4.41% in the overnight futures trade, settled unchanged at 4.46%, while the 30-yr bond yield, which slipped to 4.93%, settled at 4.98%, down two basis points.

Reviewing today's data:

• Factory orders declined 3.7% month-over-month in April (Briefing.com consensus -3.1%) following a downwardly revised 3.4% increase (from 4.3%) in March. Excluding transportation, factory orders declined 0.5% for the second straight month. Shipments of manufactured goods dropped 0.3% on the heels of a 0.2% decline in March.
  • The key takeaway from the report is that April activity was devoid of strength, with declines in durable goods orders, nondurable goods orders, and business spending.
• The April JOLTS - Job Openings Report showed there were 7.391 mln job openings versus an upwardly revised 7.200 mln (from 7.192 mln) in March.

Wednesday:

The stock market churned, but it did not burn in a session marred by some disappointing economic data and an acknowledgment by President Trump that President Xi is "very tough, and extremely hard to make a deal with."

There was no other context behind the president's remark, as speculation swirled that the two leaders could speak on Friday, but it was enough to cast some doubt on the state of the U.S.-China relationship and where their respective tariff rates and trade restrictions could go.

The market, for the most part, chopped around today in a lightly traded session that lacked conviction on the part of buyers and sellers. Still, the market cap-weighted indices managed to hold their form with the help of some relative strength among the mega-cap stocks, namely Meta Platforms (META 687.95, +21.10, +3.2%), Amazon.com (AMZN 207.23, +1.52, +0.7%), and NVIDIA (NVDA 141.92, +0.70, +0.5%).

Their gains helped mitigate the weakness in CrowdStrike (CRWD 460.56, -28.20, -5.8%) after its earnings report and disappointing revenue guidance and the weakness in Apple (AAPL 202.82, -0.45, -0.2%) after it was downgraded at Needham to Hold from Buy.

Once again, the semiconductor stocks stood out from the crowd, evidenced by the 1.4% gain in the Philadelphia Semiconductor Index. They were an outlier in a hesitant market that was also grappling with growth concerns driven by today's main economic reports.

The ADP Employment Change Report for May indicated that there were only 37,000 jobs added to private-sector payrolls (Briefing.com consensus 115,000) and none for small businesses, which lost 13,000 jobs. That report came out at 8:15 a.m. ET, and it was followed at 10:00 a.m. ET by the ISM Services PMI for May, which printed a contractionary reading (49.9%) for only the fourth time in the last 60 months.

Treasury yields turned lower in the wake of both reports. The 2-yr note yield, at 3.96% just before the ADP release, settled at 3.88%, down eight basis points. The 10-yr note yield, at 4.46% just before the ADP release, settled at 4.36%, down 10 basis points.

The dollar traded lower in conjunction with Treasury yields, but the drop in rates failed to motivate a hot stock market that took a breather in a consolidation trade. Entering today, the S&P 500 was up 23.5% from its April 7 low and trading at 21.6x forward 12-month earnings, which is a 17% premium to its 10-yr average, according to FactSet.

The communication services sector (+1.4%) was the best-performing sector and the only sector up at least 1.0%. The materials (+0.3%) and real estate (+0.3%) sectors were the next best-performing sectors. The energy (-1.9%) and utilities (-1.7%) sectors were today's biggest losers.

Reviewing today's economic data:

• The ISM Services PMI fell to 49.9% in May (Briefing.com consensus 52.0%) from 51.6% in April. The dividing line between expansion and contraction is 50.0%, so the May reading reflects services sector activity pivoting to contraction from growth in the prior month. This is only the fourth time in the last 60 months that the Services PMI has been below 50.0%.
  • The key takeaway from the report is that it signaled a worrying mix of a contraction in growth for the largest economic sector and a continued increase in prices. That will be interpreted as a stagflation report (even though the employment index tipped back into an expansion mode). In any case, the overarching message of the report is that growth has slowed amid all the tariff uncertainty.
• ADP said private sector employment increased by 37,000 in May (Briefing.com consensus 115,000) following a downwardly revised 60,000 (from 62,000) in April. The goods-producing sector saw a loss of 2,000 jobs, while the service-providing sector saw an increase of 36,000. Mid-sized firms added 49,000 jobs, but small firms shed 13,000 jobs, and large firms saw a loss of 3,000 jobs.
• The S&P Global US Services PMI checked in at 53.7 versus its prior reading of 50.8.
• The MBA's Mortgage Applications Index was down 3.9% wk/wk, with refinance applications down 4% and purchase applications down 4%.

Thursday:

Today was a fluid day in terms of major news items. We'll synthesize them in a bullet-point format while pointing out that the stock market acted well in the morning session and poorly in the afternoon session.

The S&P 500 climbed as high as 5,999.70 but just couldn't make it over the 6,000 threshold and was eventually driven as low as 5,921.20, with stocks like Tesla (TSLA 284.68, -47.37, -14.3%), Costco (COST 1010.81, -40.88, -3.9%), Brown-Forman (BF.B 27.25, -5.95, -17.9%), and Palantir Technologies (PLTR 119.91, -10.10, -7.8%) in the driver's seat.

Here is a glimpse of what unfolded today:

• President Trump and President Xi had a phone call and agreed to have their respective teams meet again soon. This news hit early, and market participants seemed to like the idea that the tone of the call sounded more conciliatory than combative.
• Elon Musk decried the one big, beautiful bill on social media and urged lawmakers to "kill the bill," which ultimately drew the ire of President Trump, who expressed his disappointment in Elon Musk and suggested in his own social media post that terminating Elon's government subsidies and contracts would be the easiest way to save billions and billions of dollars in the budget.
• The European Central Bank voted to cut its key interest rates by 25 basis points. While that news was expected, it did not weigh on the euro, which was up 0.2% against the dollar.
• Q1 productivity decreased 1.5% (Briefing.com consensus -0.8%) versus the preliminary report of a 0.8% decrease. Unit labor costs, meanwhile, were revised up to 6.6% (Briefing.com consensus 5.7%) from the preliminary reading of 5.7%.
• Initial jobless claims for the week ending May 31 increased by 8,000 to 247,000 (Briefing.com consensus: 235,000). Continuing jobless claims for the week ending May 24 decreased by 3,000 to 1.904 million; however, the four-week moving average of 1,895,250 is the highest level since November 27, 2021.
• The trade deficit plunged in April to $61.6 billion (Briefing.com consensus: -$117.2 billion) from an upwardly revised deficit of $138.3 billion (from -$140.5 billion) in March. Exports were $8.3 billion more than March exports, but imports were $68.4 billion less than March imports.
• Circle Internet Group (CRCL 83.23, +52.23, +168.5%) had a wildly successful debut. After pricing its IPO at $31.00 per share, the global fintech specializing in stablecoins traded as high as $103.75 before closing the session at 83.23.

Briefly, there was some good and some bad in today's newsflow, so it was rather fitting that breadth figures reflected a mixed disposition. Advancers and decliners were about even at the NYSE, while decliners led advancers by a 13-to-9 margin at the Nasdaq.

Tesla was the biggest drag on the underperforming Nasdaq and fellow growth stocks, which underperformed value stocks today. Overall, buying interest was subdued, as the totality of today's news wasn't enough to maintain the market's bullish momentum in front of tomorrow's Employment Situation Report.

There was only one sector that eked out a gain. That was the communication services sector (+0.06%). The consumer discretionary sector (-2.5%), hurt by Tesla, was the worst-performing sector, followed by consumer staples (-1.2%), which felt the pressure of losses in Costco after a report showing a moderation in same-store sales for May and losses in Brown-Forman, which disappointed with its earnings results and FY26 outlook.

The remaining sectors logged losses between 0.1% and 0.6%.

Reviewing today's economic data:

• Q1 productivity decreased 1.5% (Briefing.com consensus -0.8%) versus the preliminary report of a 0.8% decrease. Unit labor costs, meanwhile, were revised up to 6.6% (Briefing.com consensus 5.7%) from the preliminary reading of 5.7%.
  • Briefing.com Analyst Insight: The combination of declining productivity and the big jump in unit labor costs has stagflation undertones that will complicate the Fed's assessment of the overall economic picture and what to do with its policy rate.
• Initial jobless claims for the week ending May 31 increased by 8,000 to 247,000. Continuing jobless claims for the week ending May 24 decreased by 3,000 to 1.904 million; however, the four-week moving average of 1,895,250 is the highest level since November 27, 2021.
  • Briefing.com Analyst Insight: These data point to some softening in the labor market but altogether don't ring any loud alarm bells for the economic outlook. Yes, initial jobless claims -- a leading indicator -- have risen, but they remain well below levels associated with a recession. It won't be until the initial claims numbers start to exceed 300,000 on a regular basis that alarms will sound with respect to the labor market and the economy's growth trajectory.
• One thing that became crystal clear this morning is that the trade deficit plunged in April to $61.6 billion (Briefing.com consensus -$117.2 billion) from an upwardly revised deficit of $138.3 billion (from -$140.5 billion) in March. Exports were $8.3 billion more than March exports, but imports were $68.4 billion less than March imports.
  • Briefing.com Analyst Insight: Bear in mind that the March trade deficit was at a record level, driven by a surge in imports that was a function of frontrunning the tariffs. With the April report, there is little question that the tariff actions upended import activity. The result is that there was a major dent made in the trade deficit, which President Trump will enjoy seeing. Another takeaway is that the plunge in imports will result in the net exports component making a materially positive contribution to Q2 GDP and economists raising their Q2 GDP forecasts.

Friday:

The stock market started today's session on a high note, comforted by a May employment report that was better than feared and also, frankly, good enough to lend confidence to the idea that the U.S. economy has enough labor market footing to remain on a growth trajectory.

The Treasury market sensed as much, too. Treasury yields shot higher following the report's release and never regrouped. Yields settled at their highs for the day (4.04% for the 2-yr, up 14 basis points, and 4.51% for the 10-yr, up 12 basis points), having also digested the implication that the relatively good employment data, which also featured a larger-than-expected 0.4% increase in average hourly earnings, will likely leave the Fed reluctant to cut rates.

That view was corroborated by the fed funds futures market. The probability of a 25 basis point cut at the July FOMC meeting was reduced to 16.5% from 31.4% yesterday, while the probability of a 25 basis point cut at the September FOMC meeting was tapered to 60.6% from 73.9% yesterday.

The dollar reacted in kind to the relatively good data and the rise in rates, evidenced by a 0.5% gain in the U.S. Dollar Index to 99.20.

Stocks, for their part, were treated kindly for most of the day, with the exception of some individual issues like lululemon athletica (LULU 265.27, -65.51, -19.8%) and DocuSign (DOCU 75.28, -17.62, -19.0%), which got clobbered after their earnings reports and guidance.

Tesla (TSLA 295.58, +10.88, +3.8%) was among the winning stocks, rebounding from Thursday's drubbing after reports indicated White House aides were looking to hold a call with Elon Musk to defuse his escalating feud with the president. It was later reported that the president is not interested at this time in having a call with Elon Musk.

The president was attending to other matters. In particular, he continued to make his case for passing the "one, big beautiful bill," he took to Truth Social to say the Fed should cut rates by a full point, and he again took to Truth Social to announce that his top trade representatives, who include Treasury Secretary Bessent, Commerce Secretary Lutnick, and U.S. Trade Representative Greer, will meet Monday in London with representatives from China in reference to the trade deal.

The market took the latter news in stride and actually finished a bit lower from when the announcement was made, but it didn't finish below the 6,000 level. In fact, it closed today's session right on top of that mark (6,000.36) after hitting 6,016.87 at its high for the day shortly after the open.

The mega-cap stocks provided leadership for that move, much like they did all week, but they had plenty of company as all 11 S&P 500 sectors finished the day in positive territory. The biggest gainers were the energy (+2.0%), communication services (+1.9%), consumer discretionary (+1.6%), and financial (+1.2%) sectors.

While large-cap stocks did well, micro-cap and small-cap stocks did even better in today's risk-on action that saw advancers outpace decliners by a better than 2-to-1 margin at the NYSE and Nasdaq. Total volume, though, was lower than average at both the NYSE and Nasdaq.

Reviewing today's economic data:

• The May Employment Situation Report easily surpassed the market's worst fears, as nonfarm payrolls came in slightly ahead of expectations, the unemployment rate held steady at 4.2%, and average hourly earnings rose 0.4%, which translated into a decent 3.9% yr/yr growth rate.
  • This is an important body of hard economic data that, overall, suggests the economy is still on solid footing despite the volatility of the stock market and the tariff uncertainty. The most important takeaway is that the combination of the low unemployment rate and higher-than-expected average hourly earnings growth, which follows a robust 0.8% increase in personal income in April, will keep consumers on a spending path and the economy on a growth trajectory. Notwithstanding the fact that this report should also keep any rate cut by the Fed on hold, this is a report that the stock market should be cheering because it is a good economic report that is good for earnings prospects.
• Consumer credit increased by $17.9 billion in April (Briefing.com consensus: $10.3 billion) following a downwardly revised $3.4 billion decline (from $10.2 billion) in March.
  • Revolving credit increased by $7.7 billion, while nonrevolving credit increased by $10.2 billion