Weekly Wrap

The stock market had a losing week this week, but not by much. The difference was Friday’s session, which culminated with modest, but broad-based losses linked ostensibly to inflation concerns driven by tariff actions.

This week featured a string of tariff letters to trading partners indicating that they will be facing higher tariffs starting August 1 if they cannot work out better trade terms for the U.S. That included Japan and South Korea, which face a 25% tariff rate.

The market managed to hold up fine amid the threat of higher tariff rates, largely because most of the countries receiving the letters were not consequential trading partners, other than Japan and South Korea.

That changed late in the week, with Brazil getting a tariff letter announcing a 50% tariff rate, and then Canada getting one that sets a 35% tariff rate on imported goods not covered by the USMCA. For good measure, it was reported that the EU will be getting a letter; and President Trump declared that most trading partners will see a tariff rate of 15% to 20%, which is higher than the current 10% baseline tariff.

All things considered, the indices held up relatively well, as market participants embraced the notion that the tariff letters were being used as a negotiating leverage, cognizant that there is still time to work out less onerous terms.

Nonetheless, the tariff overhang, which also featured a 50% tariff on copper imports starting August 1 and the threat of a potential 200% tariff on pharmaceutical imports, dulled some of the market’s bullish enthusiasm.

That enthusiasm was not entirely diminished, however. The S&P 500 and Nasdaq Composite climbed to new record highs this week, aided by a better-than-expected Q2 earnings report and reassuring outlook from Delta Air Lines (DAL) and AI giant NVIDIA (NVDA) surpassing a $4 trillion market capitalization.

The mega-cap stocks, as a class, showed resolve, which was an underpinning factor for the stock market. The Vanguard Mega-Cap Growth ETF (MGK) finished the week with a fractional gain.

The week, at times, featured some favoritism of small-cap and mid-cap stocks, but that favoritism unraveled on Friday, sending the Russell 2000 and S&P Midcap 400 Index to losses for the week.

In terms of the S&P 500, its best-performing sectors were energy (+2.5%), utilities (+0.8%), industrials (+0.6%), information technology (+0.2%), and consumer discretionary (+0.1%). The biggest laggards were the financials (-1.9%), consumer staples (-1.8%), and communication services (-1.2%) sectors.

The Treasury market, for its part, had a similar showing. It traded with a resilient tone through most of the week, which included $119 billion in new supply, but came under selling pressure on Friday in a curve-steepening trade led by losses in the inflation-sensitive back end of the curve. The 2-yr note settled the week at 3.91%, while the 10-yr note yield settled at 4.41%.

Some of Friday’s selling was linked to ruminations that the push for higher tariff rates starting August 1 could leave the Fed in a sticky wait-and-see mode that forestalls a rate cut.

The U.S. Dollar Index seemed to reflect that view, having increased 0.7% this week to 97.87.

Monday:

The stock market went into the holiday weekend enjoying a fireworks show featuring better-than-expected employment conditions in June, some excitement about the passage of the "One Big, Beautiful Bill," and record highs for the S&P 500 and Nasdaq Composite. Today, however, those fireworks fizzled on some typical consolidation interest following a big run, as trade news offered a convenient excuse to do some selling.

Specifically, President Trump began sending out letters to a select group of countries that will face higher tariff rates, starting August 1, if better trade terms for the U.S. cannot be worked out before then. The EU was not part of that group. Japan and South Korea were the most prominent members in today's batch, and each will face a 25% tariff rate.

That should not have been construed as a shock, given the reporting leading up to today. Nevertheless, it served as an ostensible catalyst for today's losses, which were broad-based and unfolded in an orderly fashion.

The S&P 500 traded down to the 6,200 area before paring its losses over the last 90 minutes of trading. The Philadelphia Semiconductor Index (-1.9%) and Russell 2000 (-1.6%), which have been among the biggest gainers of late, were among today's biggest losers.

An advance-decline line that favored decliners over advancers by a nearly 4-to-1 margin at the NYSE and by a nearly 3-to-1 margin at the Nasdaq showed that there were plenty of losers to go around. Nine of the 11 S&P 500 sectors ended in negative territory.

The two exceptions were the defensive-oriented utilities (+0.2%) and consumer staples (+0.1%) sectors. The consumer discretionary sector (-1.3%) was today's weakest link, pressured by an outsized loss in Tesla (TSLA 294.11, -21.24, -6.74%). That loss was tied to concerns about Elon Musk getting distracted with his plan to start a new political party, the "America Party," and The Wall Street Journal's report that Tesla is facing increased competition in China.

Other sectors underperforming today included the materials (-1.0%), energy (-1.0%), financials (-1.0%), communication services (-0.9%), and health care (-0.9%) sectors. Energy stocks were dealing with some disappointing Q2 guidance from Shell plc (SHEL 69.84, -2.08, -2.89%) and an OPEC+ decision to raise its output in August by 548,000 barrels per day, up from 411,000 barrels per day in July. WTI crude futures, though, settled the day up 1.5% at $67.96 per barrel.

Separately, Treasuries settled their session with losses across the curve. Longer-dated maturities saw the biggest losses, resulting in a curve-steepening trade that some will attribute to worries about inflation sticking at higher levels and the Fed holding off on a rate cut. The 2-yr note yield was up one basis point to 3.89%, while the 10-yr note yield rose four basis points to 4.39%.

There was no U.S. economic data of note today.

Tuesday:

A lack of major developments on the trade front coupled with a balance between small-cap and mid-cap outperformance and mega-cap underperformance kept the major averages within a tight range of flat opening levels following yesterday's consolidation activity.

After signing an executive order officially postponing the July 9 trade deadline, President Trump said there will be no extensions past August 1 for countries that got letters yesterday and for countries that will receive letters today, tomorrow, and for the next short period of time.

Commerce Secretary Howard Lutnick said in a CNBC interview that the EU has made "significant real offers" to open up markets to the U.S., though initial reports now suggest that the EU will receive a letter from the Trump administration in the coming days.

Altogether, the developments on the trade front were in line with expectations and did little to sway the broader markets, though President Trump's actions today did have some sector-specific impacts.

Copper prices surged and copper futures settled up $0.56, or 11.2%, at $5.58/lb after President Trump announced a 50% tariff on copper that will likely start August 1. Shares of Freeport-McMoRan (FCX 46.29, +1.16, +2.57%) traded sharply higher following the announcement, and helped the materials sector (+0.8%) emerge as one of the best performers.

Oil companies in the top-performing energy sector (+2.7%) benefitted from President Trump signing an Executive Order to eliminate subsidies for "green" energy sources like wind and solar "in furtherance of the One Big Beautiful Bill Act."

ConocoPhillips (COP 95.65, +3.10, +3.35%), Chevron (CVX 152.93, +5.53, +3.75%), and Exxon Mobil (XOM 114.14, +3.03, +2.73%) all captured gains following the order and in conjunction with an increase in oil prices that saw crude oil futures settle up 0.5% to $68.30 per barrel.

Though the market as a whole traded relatively flat throughout the session, there were some noticeable trends that kept the major averages stable.

Notably, small-cap and mid-cap stocks outperformed the mega-caps, as the Russell 2000 (+0.7%) and the S&P Midcap 400 (+0.5%) outperformed the S&P 500 (-0.1%), while the Vanguard Mega Cap ETF (-0.15%) lagged. Positive breadth figures in which advancers outpaced decliners by a nearly 2:1 ratio on the NYSE and the Nasdaq further evidenced this trend.

The financials sector (-0.9%) was among the weakest performers due in part to its mega-cap components, as HSBC downgraded JPMorgan Chase (JPM 282.66, -9.31, -3.2%), Bank of America (BAC 47.14, -1.52, -3.1%), and Goldman Sachs (GS 697.04, -13.88, -2.0%).

Tesla (TSLA 297.81, +3.87, +1.32%) rebounded from yesterday's unfavorable press, but a poor performance from top component Amazon (AMZN 219.33, -4.14, -1.9%) kept the consumer discretionary sector (-0.6%) out of positive territory following reports that Amazon's initial prime day sales were down 14% from last year's figure.

Additionally, underperformance from Apple (AAPL 210.01, +0.06, +0.0%) and Microsoft (MSFT 496.62, -1.10, -0.2%) stifled further gains in the technology sector (+0.4%) despite an impressive showing from chip stocks that saw the PHLX Semiconductor Index close with a 1.8% gain, nearly negating yesterday's loss of 1.9%.

U.S. Treasuries saw some modest selling pressure today, most of which occurred ahead of the cash session. The cash session was dictated by little change across the curve despite a relatively weak 3-yr note auction and talk of more tariffs (and tariff letters) coming soon. A New York Fed survey showing a downtick in short-term inflation expectations, though, offered a measure of support in conjunction with a prevailing belief that better trade deals will ultimately be announced and that tariffs for major trading partners will be less onerous than feared.

The market will look to further developments on the trade front and the release of FOMC minutes tomorrow in hopes of shaking its relatively sluggish start to the week.

Reviewing today's economic data:

• June NFIB Small Business Optimism Index held fairly steady at 98.6 (prior 98.8)
• May Consumer Credit $5.1 bln following a downwardly revised $16.9 bln (from $17.9 bln) in April.The increase was driven entirely by nonrevolving credit, which was up $8.6 bln.

Wednesday:

The stock market started today on a higher note, following the lead of NVIDIA (NVDA 162.88, +2.88, +1.80%), which topped a $4 trillion market capitalization. The S&P 500 quickly ran into resistance as it moved up toward last week's highs, but it eventually regrouped and marched steadily higher in the afternoon, supported by falling interest rates.

The 2-yr note yield dropped five basis points to 3.86%, and the 10-yr note yield fell eight basis points to 4.34%. Any inflation angst that one might associate with the tariff letters that have been sent this week was set aside today. Participants continued to operate on the assumption that better trade deals will be struck and that the tariff actions won't lead to untenable inflation rates or to much weaker growth.

Accordingly, the bull market action persisted, accented by the inclination to buy on weakness, the leadership of the mega-cap stocks, and a broadening out of the buying interest.

NVIDIA provided the lead headline today, but it was not the biggest gainer among the mega-cap cohort. That distinction belonged to Broadcom (AVGO 277.90, +6.10, +2.24%). Other key supports included Meta Platforms (META 732.78, +12.11, +1.68%), Amazon (AMZN 222.54, +3.18, +1.45%), Alphabet (GOOG 177.66, +2.50, +1.43%), and Microsoft (MSFT 503.51, +6.89, +1.39%), the latter of which was upgraded to Outperform from Perform at Oppenheimer.

Their showing powered the Nasdaq Composite to a record high and kept the market cap-weighted S&P 500 on positive ground throughout today's trade. Elsewhere, the small-cap stocks had another good day. The Russell 2000 rose 1.1%. Mid-cap stocks were also on the move, but the S&P Midcap 400 Index registered a more modest 0.5% gain.

The drop in market rates contributed to those advances, providing a tailwind for growth stocks and an added boost for rate-sensitive plays like the homebuilding and utilities stocks.

Market breadth favored advancers by a roughly 8-to-5 margin at the NYSE and by a 7-to-4 margin at the Nasdaq.

The S&P 500 utilities sector (+1.0%) was today's best-performing sector, followed by information technology (+0.9%), communication services (+0.9%), industrials (+0.7%), and consumer discretionary (+0.7%). The only sectors losing ground were the real estate (-0.02%), energy (-0.5%), and consumer staples (-0.6%) sectors.

Today's action included Merck's (MRK 83.71, +2.34, +2.88%) news that it is acquiring Verona Pharma (VRNA 104.77, +17.91, +20.62%) in a $10 billion deal, several more inconsequential trading partners receiving tariff letters, a solid 10-yr note auction, and the release of the FOMC Minutes for the June 17-18 meeting, which conveyed a stronger expectation of rate cuts before the end of the year than no rate cuts at all.

Reviewing today's economic data:

• MBA Mortgage Applications Index +9.4% (prior +2.7%)
• May Wholesale Inventories -0.3% (Briefing.com consensus: -0.3%) following downwardly revised 0.1% increase (from 0.2%) in April

Thursday:

The stock market rebounded from opening losses, with the S&P 500 and Nasdaq Composite climbing to new record highs in today’s session.

Though there was some early selling off yesterday's bullish action, the market displayed a positive growth outlook that was reflected in the outperformance of the small-cap and mid-cap stocks, cyclical sectors, and gains in nine of the 11 S&P 500 sectors.

Small-cap and mid-cap stocks led the recovery from session lows this morning, as did “other” stocks in the S&P 500. That trend continued throughout the day. The Russell 2000 finished with a gain of 0.5%, as did the S&P Mid Cap 400 . The equal-weighted S&P 500 closed 0.6% higher. The market cap-weighted S&P 500 rose 0.3%.

The Invesco S&P High Beta ETF (+1.3%) outperformed, reflecting a bull market attitude.

While mega-cap stocks started sluggishly, they ultimately held their ground as a cohort. The Vanguard Mega Cap Growth ETF closed unchanged for the day. The mega-cap underperformance largely contributed to the communication services (-0.5%) and information technology sectors (-0.1%) finishing in negative territory.

The consumer discretionary sector (+1.0%) led the other nine sectors, bolstered by leadership from travel names after Delta Air Lines (DAL 56.79, +6.09, +12.0%) beat quarterly expectations and reinstated its guidance for the year. Many airlines had paused their guidance following the tariff announcements in early April.

Additionally, Tesla (TSLA 309.87, +13.99, +4.7%) traded sharply higher amid reports that the company is awaiting approval for a Robotaxi service in San Francisco, while also planning an expansion into Arizona, according to a Bloomberg report. McDonald’s (MCD 298.39, +5.37, +1.83%), which jumped on a Goldman Sachs upgrade to Buy from Neutral, also provided some sector support.

U.S. Treasuries finished close to where they settled in yesterday's session. There was some modest selling early today following a sturdy initial jobless claims report that is expected to keep a July rate cut on ice, but there was no follow-through.

Yields started to dip in front of today's $22 billion 30-yr bond auction results at 1:00 p.m. ET, and they continued to move lower in its wake. The auction was met with decent demand, and it concluded a week that saw the market absorb $119 billion in new supply without much problem. That fostered a bit of a relief trade that contributed to the recovery effort, which transpired amid a seeming lack of concern for tariff-induced inflation pressures.

Reviewing today's data:

• Initial jobless claims decreasing by 5,000 for the week ending July 5 to 227,000 (Briefing.com consensus: 245,000). Continuing jobless claims for the week ending June 28 increased by 10,000 to 1.965 million, which is the highest level since November 13, 2021.
  • The key takeaway from the report continues to be that businesses have been slow to let employees go, but that it has become more difficult to find a job after losing one. This dynamic reflects a softening labor market, but not a truly weak labor market.

Friday:

The announcement of a 35% tariff on Canadian imports, the indication that EU will be getting a tariff letter, and the president’s acclamation that most trading partners will face a 15% to 20% tariff rate triggered the market’s worst open this week. The initial selling, however, did not persist. The mega-cap stocks led a rebound from the opening lows and helped the indices settle into a sideways drift below their unchanged lines for the majority of the session.

The market has been generally unphased by tariff headlines over the past week; sure, there were days with some early session profit taking, but these were often on the heels of strong closings.

The setback to begin today’s trading reflected the understanding that Canada and the EU are more economically consequential trading partners than many of the countries that have received tariff letters over the past two weeks. That point notwithstanding, the market retained a generally resilient posture, much like it did throughout the week.

The recovery from the opening lows was largely attributed to some mega-caps shaking off a slow start, including a 1.3% intraday climb by NVIDIA (NVDA 164.88, +0.78, +0.5%).

Additionally, mega-cap support from Amazon (AMZN 225.02, +2.76, +1.2%) and Tesla (TSLA 313.51, +3.64, +1.2%) helped the consumer discretionary sector (+0.3%) finish as one of just two sectors that ended the day in positive territory. That's not to say that mega-caps outperformed ubiquitously, as the Vanguard Mega Cap Growth ETF (-0.2) barely outpaced the S&P 500 (-0.3%).

Declines today were spread across stocks of all sizes and nearly all sectors, with the energy sector (+0.4%) being the only sector with a vast majority of its components capturing gains.

The tariff headlines ultimately prompted some broad-based profit taking in front of a week of market-moving information next week that will include the June CPI, PPI, and Retail Sales reports, and earnings results from many of the largest banks.

U.S. Treasuries were under pressure throughout today's trade, as tariff concerns had the market on its heels, beginning in the overnight trade. Today saw the more inflation-sensitive back end of the curve underperform, rounding out a week of curve-steepening action. The front end was undercut by some ruminations that all the announcements of higher tariff rates starting August 1 could leave the Fed in a sticky wait-and-see mode.

Reviewing today's data:

• The Treasury Budget for June showed a surprising surplus of $27.0 billion (Briefing.com consensus: -$257.5B) compared to a deficit of $71.0 billion in the same period a year ago. The June surplus resulted from receipts ($526 billion) exceeding outlays ($499 billion). The Treasury Budget data are not seasonally adjusted, so the June surplus cannot be compared to the May deficit of $315.7 billion.
  • The key takeaway from the report is that it showed an actual surplus, with receipts exceeding outlays. The good news is that the deficit over the last 12 months shrunk from $1.994 trillion in May to $1.896 trillion in June. The bad news is that the deficit over the last 12 months is still $1.896 trillion