Stocks See Pressure as Reconciliation Bill Inches through Congress

The S&P 500 Index ($SPX) (SPY) today is down -0.22%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.28%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.38%.  September E-mini S&P futures (ESU25) are down -0.24%, and September E-mini Nasdaq futures (NQU25) are down -0.39%. 

Stock indexes today are mostly lower, with the S&P 500 and Nasdaq 100 consolidating below Monday's all-time highs.  Tesla is down more than -6% to lead technology stocks lower and weigh on the overall market after President Trump threatened to withdraw subsidies from Elon Musk's companies after Musk criticized the Republican reconciliation bill. The markets are also monitoring progress on trade talks ahead of President Trump's July 9 deadline, and Congress is wrangling over passage of President Trump's tax and spending bill. 

The Senate is still considering the Republican reconciliation bill, with Treasury Secretary Bessent predicting the Senate will pass the bill later today.  The reconciliation bill has the debt ceiling hike that is necessary to avert a Treasury default when the Treasury runs out of borrowing authority somewhere between mid-August and late-September.  The dollar index fell to a 3-1/3 year low today as the nonpartisan Congressional Budget Office estimates that the bill would add nearly $3.3 trillion to US deficits over the next decade.  After the Senate passes the bill, it will go back to the House for their consideration.

Better-than-expected manufacturing news from China is supportive of global economic growth prospects.  The China June Caixin manufacturing PMI rose +2.1 to 50.4, stronger than expectations of 49.3. 

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.  Later today, the June ISM manufacturing index is expected to climb by +0.2 to 48.7.  Also, today, the May JOLTS job openings are expected to fall -91,000 to 7.3 million. Finally, Fed Chair Powell participates in a panel discussing monetary policy with BOE Governor Bailey, ECB President Lagarde, and BOJ Governor Ueda at the ECB's annual retreat in Portugal. 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 19% for a -25 bp rate cut at the July 29-30 FOMC meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down -0.52%.  China's Shanghai Composite closed up +0.39%.  Japan's Nikkei Stock 225 closed down -1.24%.

Interest Rates

September 10-year T-notes (ZNU25) today are down by -3 ticks.  The 10-year T-note yield is up +0.4 bp to 4.232%. 

Sep T-notes fell from a 2-month high today and turned lower, and the 10-year T-note yield rebounded from a 2-month low of 4.185% and turned higher.  Speculation that Congress is close to passing President Trump's tax and spending bill has sparked long liquidation in T-notes.  The Congressional Budget Office estimates that the bill would add nearly $3.3 trillion to US deficits over the next decade, which would boost supply pressures as the Treasury is forced to increase sales of government debt to fund the deficits.

T-note prices today initially moved higher on carryover support from strength in European government bonds.  T-notes are also climbing as positive trade news has bolstered hopes for smaller-than-expected tariffs, which have eased inflation concerns and are bullish for T-notes. In addition, weakness in stocks today has boosted safe-haven demand for T-notes. 

European government bond yields today are moving lower.  The 10-year German bund yield is down -4.3 bp to 2.564%.  The 10-year UK gilt yield dropped to an 8-week low of 4.417% and is down -4.6 bp to 4.443%.

The Eurozone June CPI edged up to +2.0% y/y from +1.9% y/y in May, right on expectations. The June core CPI was unchanged from May at +2.3% y/y, right on expectations.

The ECB May 1-year CPI inflation expectations unexpectedly eased to +2.8% from +3.1% in Apr, versus expectations of no change at +3.1%.  The May 3-year CPI expectations unexpectedly eased to +2.4% from +2.5% in Apr versus expectations of no change at +2.5%.

The Eurozone June manufacturing PMI was revised upward by +0.1 to 49.5 from the previously reported 49.4. 

The German June unemployment change rose +11,000, showing a stronger labor market than expectations of +15,000.  The Jun unemployment rate was unchanged at 6.3%, showing a stronger labor market than expectations of an increase to 6.4%.

Swaps are discounting the chances at 6% for a -25 bp rate cut by the ECB at the July 24 policy meeting.

US Stock Movers

Tesla (TSLA) is down more than -6% to lead losers in the S&P 500 and Nasdaq 100 as President Trump threatened to withdraw government subsidies from Elon Musk's companies after Musk criticized Trump's tax and spending bill.  Analysts estimate that changes to regulatory credits could threaten up to 40% of Tesla's profits.

Weakness in chip stocks is a negative factor for the overall market.  Advanced Micro Devices (AMD) is down more than -2%.  Also, Nvidia (NVDA), Broadcom (AVGO), ASML Holding NV (ASML), Lam Research (LRCX), and KLA Corp (KLAC) are down more than -1%.

Warner Bros Discovery (WBD) is down more than -4% after holder Advance/Newhouse planned to sell as much as $1.1 billion of its holdings in WBD via an overnight unregistered block trade.

Dyne Therapeutics (DYN) is down more than -7% after offering 24.2 million shares of its common stock in an underwritten public offering at a price of $8.25 per share, below Monday's closing price of $9.52.

AeroVironment (AVAV) is down more than -6% after announcing plans to sell $750 million worth of shares of its common stock in an underwritten public offering and $600 million of aggregate convertible senior notes due 2020. 

Sweetgreen Inc (SG) is down more than -5% after TD Cowen downgraded the stock to hold from buy.

US-listed Macau casino operators are climbing today after Macau's monthly gaming revenue rose +19% y/y in June, above expectations of a +9.4% y/y gain.  As a result, Wynn Resorts Ltd. (WYNN) is up more than +8% to lead gainers in the S&P 500.  Also, Las Vegas Sands (LVS) is up more than +7% and MGM Resorts International (MGM) is up more than +4%. 

Nike (NKE) is up more than +3% to lead gainers in the Dow Jones Industrials after Argus Research upgraded the stock to buy from hold with a price target of $85.

Trade Desk (TTD) is up more than +2% to lead gainers in the Nasdaq 100 after Citibank raised its price target on the stock to $90 from $82. 

Hasbro (HAS) is up more than +2% after Goldman Sachs upgraded the stock to buy from neutral with a price target of $85.

Ryder System (R) is up more than +2% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $183. 

CH Robinson Worldwide (CHRW) is up more than +1% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $112. 

Earnings Reports (7/1/2025)

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