Stocks Settled Mixed as Higher Bond Yields Weigh on Sentiment

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.11%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.91%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.89%.  September E-mini S&P futures (ESU25) are down -0.12%, and September E-mini Nasdaq futures (NQU25) are down -0.91%. 

Stock indexes on Tuesday settled mixed, with the Dow Jones Industrials posting a 4-1/2 month high.  The S&P 500 and Nasdaq 100 moved lower Tuesday and consolidated below Monday’s all-time highs.  Tesla closed 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, as well as congressional wrangling over the passage of President Trump’s tax and spending bill. 

The Senate passed the Republican reconciliation bill on Tuesday by a 51-50 vote.  The bill now goes to the House, where it will be voted on sometime this week.  Speaker Johnson said the House “will work quickly” to pass the bill by July 4.  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 Tuesday 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 Tuesday 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 on Tuesday settled mixed.  The Euro Stoxx 50 closed down -0.39%.  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) Tuesday closed down by -8.5 ticks.  The 10-year T-note yield rose +2.0 bp to 4.248%.  Sep T-notes fell from a 2-month high Tuesday 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 Tuesday after the stronger-than-expected ISM and JOLTS reports were hawkish for Fed policy.

T-note prices initially moved higher on Tuesday due to 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. 

European government bond yields on Tuesday moved lower.  The 10-year German bund yield fell -3.3 bp to 2.574%.  The 10-year UK gilt yield dropped to an 8-week low of 4.417% and finished down -3.5 bp to 4.454%.

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) closed down more than -5% 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) closed down more than -4%, and Broadcom (AVGO) and ARM Holdings Plc (ARM) closed down more than -3%.  Also, Nvidia (NVDA) closed down more than -2% to lead losers in the Dow Jones Industrials.  In addition, Marvell Technology (MRVL), Micron Technology (MU), and ASML Holding NV (ASML) closed down more than -1%.

Makers of glucose monitors and insulin pumps retreated Tuesday after the US government proposed a payment scheduling change for diabetes devices as well as a competitive bidding program.  As a result, Tandem Diabetes Care (TNDM) closed down more than -7%, and Insulet (PODD) and Dexcom (DXCM) closed down more than -4%.

Warner Bros Discovery (WBD) closed 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) closed down more than -11% 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) closed down more than -8% 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) closed down more than -2% after TD Cowen downgraded the stock to hold from buy.

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

Packaging Corporation of America (PKG) closed up more than +7% 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. 

Ryder System (R) closed up more than +6% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $183. 

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

Nike (NKE) closed up more than +3% after Argus Research upgraded the stock to buy from hold with a price target of $85.

CH Robinson Worldwide (CHRW) closed up more than +2% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $112. 

Trade Desk (TTD) closed up more than +2% after Citibank raised its price target on the stock to $90 from $82. 

Earnings Reports (7/2/2025)

Franklin Covey Co (FC), UniFirst Corp/MA (UNF).