Stocks Mixed on Weak US Labor Market News

The S&P 500 Index ($SPX) (SPY) today is up +0.03%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.16%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.17%.  September E-mini S&P futures (ESU25) are down -0.04%, and September E-mini Nasdaq futures (NQU25) are up +0.10%. 

Stock indexes today are mixed.  Apple and Tesla are up more than +2% today to lead technology stocks higher.  However, gains in the broader market are limited by concern that the US labor market is weakening after the June ADP employment report showed that employment at US companies unexpectedly declined for the first time in more than two years.  Weakness in health insurance stocks is also weighing on the overall market, led by a -37% plunge in Centene after it withdrew its 2025 guidance due to insurance market trends that differed from its initial assumptions.

The markets are awaiting a House vote on the Senate version of President Trump’s tax and spending bill.  Also, trade talks are in focus ahead of the July 9 deadline for reciprocal tariff implementation.  Late Tuesday, President Trump said a trade deal with Japan is unlikely, so the country will most likely pay a tariff of 30%, 35% or “whatever the number is that we determine.”  

On Tuesday, the Senate passed the Republican reconciliation bill by a 51-50 vote.  The bill is now being considered by the House, where a vote is expected 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 nonpartisan Congressional Budget Office estimates that the bill would add nearly $3.3 trillion to US budget deficits over the next decade. 

US MBA mortgage applications rose +2.7% in the week ended June 27, with the purchase mortgage sub-index up +0.1% and the refinancing mortgage sub-index up +6.5%. The average 30-year fixed rate mortgage fell -9 bp to 6.79% from 6.88% in the prior week.

The US June ADP employment change unexpectedly fell -33,000, weaker than expectations of a +98,000 increase and the first decline in 2-1/4 years.

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 possible passage of President Trump’s tax bill.  On Thursday, June 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 June ISM services index is expected to climb +0.7 to 50.6. 

Federal funds futures prices are discounting the chances at 23% for a -25 bp rate cut at the July 29-30 FOMC meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +0.36%.  China’s Shanghai Composite closed down -0.09%.  Japan’s Nikkei Stock 225 closed down -0.56%.

Interest Rates

September 10-year T-notes (ZNU25) today are down by -9 ticks.  The 10-year T-note yield is up +4.9 bp to 4.291%. 

T-notes are under pressure today due to carryover weakness in European government bonds.  Also, 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.  Rising inflation expectations are also undercutting T-note prices, as the 10-year breakeven inflation rate rose to a one-week high today at 2.319%.

Losses in T-notes are limited after the June ADP employment change unexpectedly declined for the first time in more than two years, a dovish factor for Fed policy. Also, the weakness in stocks today has prompted some safe-haven demand for T-notes.  

European government bond yields today are moving higher.  The 10-year German bund yield jumped to a 1-1/2 month high of 2.673% and is up +9.5 bp to 2.669%.  The 10-year UK gilt yield rose to a 3-week high of 4.633% and is up +16.6 bp to 4.620%.

The Eurozone May unemployment rate unexpectedly rose +0.1 to 6.3%, showing a weaker labor market than expectations of no change at 6.2%

ECB Governing Council member Centeno said the ECB “is not in a hurry” to cut interest rates further despite inflation being at its 2% target.

ECB Governing Council member Rehn said he’s “concerned about inflation being below the ECB’s target for an extended period of time” as the ECB is projecting 18 months of inflation below its goal due to US tariffs and the Eurozone economy’s struggle to expand.

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

Health insurance stocks are being hammered today, led by a -37% plunge in Centene (CNC) after it pulled its 2025 guidance, citing insurance market trends that differed from its assumptions and threaten $1.8 billion in revenue.  Also, Molina Healthcare (MOH) is down more than -14%, and Elevance Health (ELV) is down more than -6%.  In addition, Humana (HUM), Cigna Group (CI), HCA Healthcare (HCA), and UnitedHealth Group (UNH) are down more than -2%.

BrightView Holdings (BV) is down more than -14% after cutting its full-year revenue forecast to $2.68 billion-$2.73 billion from a previous forecast of $2.75 billion-$2.84 billion, below the consensus of $2.78 billion. 

Oscar Health (OSCR) is down more than -13% after Barclays initiated coverage of the stock with a recommendation of underweight and a price target of $17. 

Adobe Inc (ADBE) is down more than -3% after Rothchild & Co downgraded the stock to sell from hold with a price target of $280. 

Crocs Inc. (CROX) is down more than -1% after Goldman Sachs initiated coverage of the stock with a recommendation of sell and a price target of $88.

Tesla (TSLA) is up more than +2% to lead gainers in the Nasdaq 100 after reporting June Shanghai deliveries rose +0.8% y/y to 71,599 units, the first increase in Chinese shipments this year. 

Apple (AAPL) is up more than +2% to lead gainers in the Dow Jones Industrials after Jeffries upgraded the stock to hold from underperform.

Cruise line operators are moving higher today.  Carnival (CCL) and Royal Caribbean Cruises Ltd (RCL) are up more than +2%, and Norwegian Cruise Line Holdings (NCLH) is up more than +1%. 

Verint Systems (VRNT) is up more than +6% after Bloomberg News reported that buyout firm Thoma Bravo is in talks to acquire the company.

Cava Group (CAVA) is up more than +2% after KeyBanc Capital Markets initiated coverage of the stock with a recommendation of overweight and a price target of $100.

Ross Stores (ROST) is up more than +1% after Jeffries upgraded the stock to buy from hold with a price target of $150.

Earnings Reports (7/2/2025)

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