Strong Jobs Data Lifts Markets, Tariff Tensions Looms

 US Weekly Recap: Dow +2.30%, S&P +1.72%, Nasdaq +1.62%, Russell 2000 +3.52%

Thursday, July 03, 2025 (GMT)

Overview:

US equities were higher again for the holiday-shortened week, with the S&P and Nasdaq both hitting fresh record closes. Markets saw some rotation out of Q2’s top performers, with momentum factor lagging and value stocks having a good week. Outperformers this week included energy, apparel, homebuilders, banks, airlines, credit cards, chemicals, and paper/packaging. Most-shorted, SE Asia-exposed, and small-cap names also had a good week. Big tech was mixed, with AAPL +6.2% the notable gainer in the group but TSLA (2.6%). Managed care was a notable laggard after CNC (38.3%) withdrew guidance on shifts to its risk assessments. Other underperformers included A&D, P&C insurance, staples retailers, semis, China tech, utilities, and REITs.

Treasuries were weaker with the curve flattening; 2Y yields jumped sharply on Friday after June’s solid nonfarm payrolls report. The dollar was slightly weaker overall; DXY (0.2%). At Thursday’s stock-market close, gold was up 1.7% for the week. WTI crude was up 2.1%, rebounding a bit after the prior week’s 11.3% drop.

What happened?:

The market remained on alert for trade headlines ahead of next week’s 9-Jul expiration of the 90-day reciprocal tariff pause. One big development was the announcement of a deal with Vietnam for a 20% base tariff but 40% on products considered to be transshipments (to crack down on the country being used as a conduit for China). Analysts commented that the agreed levels were higher than expected, but were more positive on improved trade clarity. There were also more headlines about progress on an EU-US deal while a deal with Japan is seen as a longer shot; areas of disagreement remained with India. At the same time, Trump continued to push back on any further delay, reiterating that countries without a deal could get a letter setting tariff rates; Treasury Secretary Bessent said “recalcitrant” countries could see their rates move back to 2-Apr reciprocal levels.

The week’s big economic release was June nonfarm payrolls, which beat consensus in contrast to a June drop in ADP private payrolls some analyst previews flagging possible downside risks to the headline. The unemployment rate unexpectedly ticked down to 4.1% from the prior 4.3%, while average hourly earnings growth was cooler than forecast. The ISM manufacturing and services reports were more mixed, with the headlines coming in just a hair light and respondent commentary still leaning cautious. Construction spending ticked lower m/m, largely as expected. June factory orders came in at an 11-year high, though driven largely by nondefense aircraft/transportation orders.

There was not much new in the Fed narrative this week. In his appearance at the ECB’s annual Sintra conference, Chair Powell broadly reiterated his view that policy remains in a good place and the bank has the ability to be patient and see how the tariff backdrop evolves. But at the same time, he stressed all meetings are live (including July) and noted that rates would likely have been lower now but for the uncertain trade-policy impacts. Note that while this played into thoughts about a nearer-term cut, these hopes were broadly undermined by the strong nonfarm payrolls reading (FedWatch July cut odds dropped below 5% from the prior day’s ~24% after the release).

Finally, Thursday is set to see the passage of the GOP’s One Big Beautiful Bill Act. Republican leaders in the Senate earlier this week overcame some opposition (though required VP Vance to break a tie). While there was a lot of focus on possible resistance among groups in the House to the bill (which was changed significantly from what that body passed earlier this year), Speaker Johnson announced in the small hours of Thursday morning that he had the votes to pass the measure; Democrats are speaking against it but a final vote is expected later today.

Ultimately, the path of least resistance remained to the upside this week. There seems to be limited anxiety about 9-Jul developments despite the number of incomplete deals and possibility for a rise in tariff rates. The June nonfarm payrolls report has helped reinforce views of an economy on a solid foundation, though economists are still waiting for tariff impacts to show in the hard data. Some Fed rate cuts are expected to begin in the coming weeks, though consensus continues to forecast September rather than July (and a hold in July is only likely to further amplify White House pressure on Chair Powell).

Corporate highlights:

TRIP +34.0% rose on news Starboard Value has built a 9%+ stake. GBX +21.3% beat on most key metrics and raised FY margin guidance. The Justice Department settled its case challenging HPE +15.9% acquiring Juniper Networks; that deal closed on Wednesday. DDOG +17.5% rallied on news it would take Juniper’s place in the S&P 500. HOOD +13.7% had a good but choppy week after positive takes on its token launch event. GMS +12.7% to be acquired by Home Depot in a $5.5B deal. FIZZ’s +10.7% revenue beat was well received.

To the downside, DXCM (3.9%) and other diabetes device companies came under pressure on concerns about competitive bidding. UNF (6.1%) core laundry results were below the Street. PRGS (14.6%) reported weaker-than-expected software license results. CNC (38.3%) withdrew guidance as it reviews its risk assumptions, including healthcare exchange growth forecasts.

Coming next week:

The market’s major focus next week is likely to be the expiration of the 90-day pause on reciprocal tariffs on 9-Jul and the possible release of letters unilaterally setting tariff amounts, though some other bilateral deals may be announced. The coming week will see a thin economic calendar, with Tuesday’s NFIB small-business optimism and Thursday’s jobless claims among the biggest releases. There will be $119B in new Treasury issuance, with $58B in 3s (Tuesday), $39B in 10s (Wednesday), and $22B in 30s (Thursday). On Wednesday, the Fed will release the minutes the June 17-18 FOMC meeting. Fedspeak may be fairly sparse, though St. Louis’s Musalem and SF’s Daly are set to speak on Friday 10-Jul. There will be few earnings reports from major companies; note the Q2 earnings season will begin in earnest with the big banks on 15-Jul.

S&P 500 Sector Performance:

Outperformers: Materials +3.74%, Tech +2.44%, Financials +2.40%, Energy +2.09%, Industrials +1.73%

Underperformers: Communication Svcs. (0.17%), Utilities +0.60%, Consumer Disc. +0.82%, Healthcare +1.16%, Consumer Spls. +1.40%, Real Estate +1.51%

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