Stocks Pressured as Bond Yields Climb on Strong US Economic News

The S&P 500 Index ($SPX) (SPY) today is down -0.28%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.51%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.80%.  September E-mini S&P futures (ESU25) are down -0.28%, and September E-mini Nasdaq futures (NQU25) are down -0.82%. 

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 -5% to lead technology stocks lower and weigh on the overall market after President Trump threatened to withdraw subsidies from Elon Musk’s companies in response to Musk’s criticism of the Republican reconciliation bill.  The markets are also monitoring progress on trade talks ahead of President Trump’s July 9 deadline, and Congressional wrangling over passage of President Trump’s tax and spending bill. 

The Senate narrowly passed the Republican reconciliation bill 51-50 earlier today, which now goes back to the House for their consideration. The reconciliation bill has the debt ceiling hike that is necessary to avert a Treasury default when the Treasury runs out of borrowing authority sometime 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 budget deficits over the next decade. 

Stocks remained lower today after the better-than-expected US ISM and JOLTS reports pushed bond yields higher and dampened expectations of imminent Fed rate cuts.  Also, Fed Chair Powell reiterated his wait-and-see stance on interest rates as he expects tariffs to show up in inflation data over the coming months.

The US June ISM manufacturing index rose +0.5 to 49.0, stronger than expectations of 48.8. Also, the June ISM prices paid sub-index rose +0.3 to 69.7, stronger than expectations of 69.5.

US May JOLTS job openings unexpectedly rose +374,000 to a 6-month high of 7.769 million, showing a stronger labor market than expectations of a decline to 7.300 million. 

Fed Chair Powell said he expects the impacts of tariffs to show up in inflation data over the coming months, but the impact could be “higher or lower, or later or sooner than we expected.”

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.  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 today are mixed.  The Euro Stoxx 50 is down -0.31%.  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 -10 ticks.  The 10-year T-note yield is up +2.7 bp to 4.255%.  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 some weakness in T-note prices.  The Congressional Budget Office estimates that the bill would add nearly $3.3 trillion to US deficits over the next decade, which would boost Treasury security sales to fund the deficits.  Losses in T-notes accelerated today after the stronger-than-expected ISM and JOLTS reports were hawkish for Fed policy.

T-note prices today initially moved higher on carryover support from strength in European government bonds.  T-notes were also boosted as positive trade news has bolstered hopes for smaller-than-expected tariffs, which would soften the inflation outlook.  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 -3.7 bp to 2.570%.  The 10-year UK gilt yield dropped to an 8-week low of 4.417% and is down -4.9 bp to 4.440%.

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%.

ECB Governing Council member Kazaks said, “If the euro were to significantly appreciate further, it could weigh down on inflation and exports, which could tilt the balance toward another ECB interest rate cut.”

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 -5% 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 the Republicans’ reconciliation 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), Broadcom (AVGO), and ARM Holdings Plc (ARM) are down more than -3%.  Also, Nvidia (NVDA) is down more than -2% to lead losers in the Dow Jones Industrials.  In addition, Micron Technology (MU), 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.

AeroVironment (AVAV) is down more than -7% 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. 

Dyne Therapeutics (DYN) is down more than -5% 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.

Sweetgreen Inc (SG) is down more than -3% 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 +8% and MGM Resorts International (MGM) is up more than +6%. 

Packaging Corporation of America (PKG) is up more than 6% after the company acquired Greif Containerboard for $1.8 billion, and Barclays said the purchase will increase PKG’s capacity to 6.0 MMT, holding its place as the third-largest containerboard maker in the US. 

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.

Hasbro (HAS) is up more than +4% after Goldman Sachs upgraded the stock to buy from neutral with a price target of $85.

Ryder System (R) is up more than +4% 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 +2% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $112. 

Trade Desk (TTD) is up more than +1% after Citibank raised its price target on the stock to $90 from $82. 

Earnings Reports (7/1/2025)

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