Weekend Update #236
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Equity markets extended gains this week, pushing to new all-time highs on the back of labor market indicators, trade negotiations, and President Trump’s Big Beautiful Bill passed the House. The shortened holiday trading week featured JOLTS, ADP, and BLS employment data, which for the most part, were positive surprises for markets. In the third trade deal signed by the U.S. following Liberation Day announcements, Vietnam agreed to pay 20% export tariffs and 40% tariffs on transshipments while agreeing to drop all tariffs on U.S. imports. The U.S.-Vietnam trade deal especially benefits furniture and apparel makers who have transferred manufacturing to Vietnam in recent years, following increased scrutiny on Chinese manufacturing. Companies such as Nike, Lululemon, and ON Holding all gained in trading as a positive negotiation will help defend margins. Progress toward passing the Big Beautiful Bill through the House also helped boost underlying economic growth expectations due to the stimulative nature of the tax cuts and spending.
In economic data for the week, the June ISM Manufacturing report showed an upside surprise on economists’ estimates as production activity and inventories improved while new orders and employment weakened. The May JOLTS report showed a significant upside surprise as job openings increased by nearly 400,000 to 7.8 million. The June ADP Employment Report showed a job loss of 33,000, but in recent months, the indicator has diverged from the Bureau of Labor Statistics’ indicators. On Friday, the jobs report showed Nonfarm Payrolls rose by 147,000 in June, exceeding economists’ estimates of 106,000, driven by a strong increase in State and Local Government jobs. The U-3 Unemployment Rate unexpectedly fell to 4.1% as lower immigration contributed to a fall in the Labor Force Participation Rate to 62.3%. Average Hourly Earnings continued to cool on the monthly and yearly readings to 0.2% and 3.7%, respectively. Initial Jobless Claims unexpectedly fell to 233,000, which was another positive labor market indication. The ISM Services report showed activity expanding faster than expected as new orders and prices rose yet hiring slowed. Overall, the labor data resulted in investors cutting expectations to 0 rate cuts for the July FOMC meeting, given the Federal Reserve can afford to maintain a pause on rates without significant labor market weakening.
On Thursday, the U.S. House of Representatives voted 218-214 to pass President Trump’s Big Beautiful Bill, just one day before the July 4th deadline. The House voted after an all-night meeting that included the longest House floor speech ever, an 8-hour-long marathon by House Democratic Leader Hakeem Jeffries. The stimulative measures should boost economic growth, but the increase in the federal deficit and specific spending cuts were both subjects of the debate.
The $3.4 trillion Big Beautiful Bill will consist of:
A permanent expansion of the 2017 increase in the basic standard deduction on taxes
Social Security tax breaks for individuals 65 years and older
An increase to the state and local tax deduction (SALT) from $10,000 to $40,000
A “no tax on tips” provision to create a deduction for tipped workers
A $2,000 child tax credit
A raise of the debt ceiling by $5 trillion
The end of the Inflation Reduction Act’s clean energy tax incentives
Shifting the funding of SNAP benefits toward states and away from the federal government
New Medicaid work requirements and more frequent eligibility checks
$120 billion for border wall construction, immigrant detention facility expansion, and U.S. Immigration and Customs Enforcement (ICE) funding
$150 billion for defense spending toward the Golden Dome, new Navy ship production, and munitions production
Friday’s Close (Weekly Performance)
S&P 500 6,279.35 (+1.72%)
Nasdaq 20,601.10 (+1.62%)
Dow Jones 44,828.53 (+2.30%)
Thank you Blue Room Senior Analyst JARED FENLEY
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