Market Update: July Start with Mixed Signals
On Tuesday, the stock market began July on a downturn, primarily influenced by declines in major tech stocks. In contrast, there was a notable uptick from small businesses, which provided some relief.
The Dow Jones industrial average climbed by 400 points, or 0.9%.
However, the S&P 500 dipped by 0.1%, and the tech-heavy Nasdaq composite saw a steeper fall of 0.8%. Much of this downward pressure stemmed from significant tech companies like Nvidia, Meta, and Tesla, all valued in the trillions.
Interestingly, smaller companies were thriving, highlighted by a 1% increase in the Russell 2000 index. According to data from Dow Jones Market, the gap between the Nasdaq Composite and the Russell was the largest since April.
This performance illustrated a shift in the roles of the Dow and S&P 500.
Looking back at June, the S&P 500 achieved record highs, up roughly 11%, marking its best quarterly performance since the end of 2023. In comparison, the Dow only managed a 5% gain in the same period.
Bespoke Investment Group noted, “If your portfolio had a strong Q2, expect to see a lot of red on the screens today, and the opposite might hold true.” They mentioned that there’s a significant rotation happening beneath the surface.
The bond market remained relatively stable, with the yield on the 10-year Treasury bond rising slightly to 4.25%. This marks a fall from the highs seen in April due to trader concerns about inflation and a reevaluation of interest rates.
While tariffs haven’t been able to push inflation upwards, the anticipated slowdown in economic growth may prompt the Federal Reserve to implement deeper interest rate cuts in 2025 than previously expected.
Recent Treasury auctions have bolstered the bond market, amid worries that foreign buyers are turning away from U.S. debt.
Investors are also awaiting the June payroll data release set for Thursday. Economists, as noted by FactSet, are looking for an increase of around 115,000 jobs, a decrease from May’s 139,000. Slower than anticipated job growth could suggest that the labor market needs assistance from the Fed through potential rate cuts in July.
Barry Knapp, the Director of Research at Ironsides Macroeconomics, expressed that “the biggest risk to the market seems to stem from weak reports of FOMC participants who might overlook them when forecasting tariff inflation.”
Further risks are associated with tariffs. On Tuesday, Trump indicated he has no intention of extending the July 9 deadline for implementing higher tariffs. White House spokesperson Karoline Leavitt previously stated that the July trade deadline is “not important,” implying there might be flexibility in increasing tariffs.
