Stocks Rally into Quarter-End on Trade Optimism and Lower Bond Yields

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.52%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.63%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.64%.  September E-mini S&P futures (ESU25) are up +0.44%, and September E-mini Nasdaq futures (NQU25) are up +0.56%. 

Stock indexes rallied on Monday, the last day of Q2, with the S&P 500 and Nasdaq 100 posting new all-time highs, and the Dow Jones Industrials posting a 4-1/4 month high.  Positive trade news boosted stocks Monday, with President Trump’s July 9 deadline fast approaching.  Progress is being made in trade negotiations with China and the European Union.  Also, trade talks are back on with Canada after the country withdrew a digital services tax, and India’s and Japan’s trade teams extended their stay in Washington to iron out new trade deals. 

Lower bond yields on Monday also propelled stocks higher.  The weakness in US economic news on Monday bolstered speculation that the Fed will cut interest rates sooner rather than later, due to the weaker-than-expected reports on the June MNI Chicago PMI and the June Dallas Fed manufacturing survey.  The 10-year T-note yield fell to an 8-week low Monday at 4.22%.  Also, comments from Treasury Secretary Bessent knocked longer-term bond yields lower when he said that the time to issue more long-term securities was when interest rates were lower in 2020, 2021, and 2022, which eased supply concerns on the long end of the curve.

The Senate has begun consideration of the Republican reconciliation bill, with the dollar index sliding to a new 3-1/4-year low Monday, as the nonpartisan Congressional Budget Office estimates that the bill would add nearly $3.3 trillion to US deficits over the next decade.

M&A activity is also supportive of stocks after Home Depot announced it has acquired GMS Inc. for $4.3 billion, and AbbVie agreed to buy Capstan Therapeutics for $2.1 billion. 

The US June MNI Chicago PMI unexpectedly fell -0.1 to 40.4, weaker than expectations of an increase to 43.0 and the weakest level in 5 months.

The US June Dallas Fed manufacturing outlook survey rose +2.6  to -12.7, weaker than expectations of -10.0.

Better-than-expected economic news from China is supportive of global economic growth prospects. The China June manufacturing PMI rose +0.2 to 49.7, stronger than expectations of 49.6.  Also, the June non-manufacturing PMI rose +0.2 to 50.5, stronger than expectations of no change at 50.3.

Atlanta Fed President Bostic was slightly hawkish when he stated that much of the tariff pricing hasn’t yet been reflected in the marketplace and that tariffs may cause an incremental impact on prices, leading to more persistent upward pressure on inflation.  He projects one 25 bp rate cut this year and three rate cuts in 2026.

On the negative side for stocks is the upcoming earnings season, which begins next week. Bloomberg Intelligence data show that the consensus for Q2 earnings of S&P 500 companies is for a rise of 2.8% year-over-year, the smallest increase in two years.  Also, only six of the 11 S&P 500 sectors are projected to post an increase in earnings, the fewest since Q1 of 2023, according to Yardeni Research.

During this holiday-shortened week, the markets will look for additional trade and tariff news along with progress in the passage of President Trump’s tax bill.  On Tuesday, the June ISM manufacturing index is expected to climb by +0.2 to 48.7.  Also, on Tuesday.  May JOLTS job openings are expected to fall -91,000 to 7.3 million.  Finally, on Tuesday, Fed Chair Powell participates in a panel discussing monetary policy with BOE Governor Bailey, ECB President Lagarde, and BOJ Governor Ueda.  On Wednesday, the June ADP employment change is expected to rise by +90,000.  On Thursday, Jun nonfarm payrolls are expected to climb by +113,000, and the June employment rate is expected to tick up +0.1 to 4.3%.  Also, June average hourly earnings are expected to rise +0.3% m/m and +3.8% y/y. In addition, weekly initial unemployment claims are expected to climb +5,000 to 241,000, and May factory orders are expected to jump +8.1% m/m.  Finally, the Jun ISM services index is expected to climb +0.7 to 50.6. 

Federal funds futures prices are discounting the chances at 21% for a -25 bp rate cut at the July 29-30 FOMC meeting.

Overseas stock markets on Monday settled mixed.  The Euro Stoxx 50 fell from a 2-week high and closed down -0.42%.  China’s Shanghai Composite closed up +0.59%.  Japan’s Nikkei Stock 225 rose to an 11-1/2 month high and closed up +0.84%.

Interest Rates

September 10-year T-notes (ZNU25) Monday closed up by +10 ticks.  The 10-year T-note yield fell -4.7 bp to 4.23%. 

Sep T-notes rallied to an 8-week high Monday, and the 10-year T-note yield fell to an 8-week low of 4.22%.  T-note prices rose Monday as positive trade news bolstered hopes for smaller-than-expected tariffs, which eased inflation concerns.  Today’s weaker-than-expected Chicago PMI and Dallas Fed reports were also supportive for T-notes.  In addition, comments from Treasury Secretary Bessent alleviated concerns about supply pressure on the long end of the Treasury curve when he said now is not the time for the Treasury to issue more long-term securities. 

T-notes remained well-bid into the close Monday on month-end and quarter-end buying by bond fund managers, who must buy longer-term Treasuries to rebalance their portfolios. Month-end bond index rebalancing is projected to increase duration by 0.07 years, according to the Bloomberg Treasury index. 

On the negative side for T-notes was Monday’s rally in the S&P 500 to a new record high, which reduced safe-haven demand for government securities.  Also, Atlanta Fed President Bostic said that tariffs may lead to more persistent upward pressure on inflation.

European government bond yields on Monday were mixed.  The 10-year German bund yield rose to a 5-week high of 2.612% and finished up +1.5 bp to 2.607%.  The 10-year UK gilt yield fell -1.5 bp to 4.489%.

German May retail sales unexpectedly fell -1.6% m/m, weaker than expectations of a +0.5% m/m increase and the biggest decline in more than 2-1/2 years.

The German June CPI (EU harmonized) rose +0.2% m/m and +1.7% y/y, weaker than expectations of +0.3% m/m and +1.8% y/y.

ECB Vice President Guindos said the Eurozone economy is stalling because of the “brutal uncertainty” surrounding global trade policy and that second and third quarter growth “will be almost flat.” 

Swaps are discounting the chances at 4% for a -25 bp rate cut by the ECB at the July 24 policy meeting.

US Stock Movers

Bank stocks rose Monday after news last Friday that the largest US banks all passed the Fed’s annual stress test, which could prompt the banks to increase buybacks and dividends for shareholders.  As a result, Goldman Sachs (GS) closed up more than +2% to lead gainers in the Dow Jones Industrials.  Also, Northern Trust (NTRS) and JPMorgan Chase (JPM) closed up more than +1%.  In addition, Capital One Financial (COF) and Synchrony Financial (SYF) closed up +0.83%, and Wells Fargo & Co. (WFC) closed up +0.78%.  

Hewlett-Packard Enterprise (HPE) closed up more than +11% to lead gainers in the S&P 500, and Juniper Networks (JNPR) closed up more than +8% after the Justice Department settled its lawsuit challenging HPE’s takeover of Juniper Networks.

GMS Inc. (GMS) closed up more than +11% after Home Depot agreed to buy the company for $4.3 billion or about $110 per share.

Whirlpool Corp (WHR) closed up more than +5% after Longbow Research upgraded the stock to buy from neutral with a price target of $145. 

AppLovin (APP) closed up more than +4% after UBS raised its price target on the stock to $540 from $475.

Oracle (ORCL) closed up more than +3% after Stifel upgraded the stock to buy from hold with a price target of $250.

Walt Disney Co (DIS) closed up more than +1% after Jeffries upgraded the stock to buy from hold with a price target of $144.

Weakness in WTI crude prices weighed on energy producers and energy service providers on Monday.  Diamondback Energy (FANG), APA Corp (APA), Exxon Mobil (XOM), Occidental Petroleum (OXY), and Devon Energy (DVN) closed down more than -1%.

Cohen & Steers Inc. (CNS) closed down more than -3% after Bank of America Global Research initiated coverage on the stock with a recommendation of underperform with a price target of $67.

Fortive (FTV) closed down more than -3% after announcing the retirement of CEO and President Lico and saying that Olumide Soroye will replace him. 

Lamb Weston Holdings (LW) closed down more than -2% after agreeing to appoint six new independent directors and name Bradley Alford as chairman following an agreement with activist investor Jana Partners Management and Continental Grain Co.

Earnings Reports (7/1/2025)

Constellation Brands Inc (STZ), Greenbrier Cos Inc/The (GBX), MSC Industrial Direct Co Inc (MSM), TechTarget Inc (TTGT).