The first trading day of the third quarter ended with mixed results. Investors favored small- and mid-cap stocks, while mega-cap growth stocks—including Tesla and Nvidia—came under pressure. Rising bond yields, political tension in the U.S., and uncertainty over the Fed’s next steps contributed to increased volatility.
Macroeconomic Picture and Fed Policy
Stronger-than-expected data from the U.S. labor market (JOLTS) and manufacturing sector (ISM) pushed 10-year Treasury yields up to 4.25%, dampening hopes for an imminent Fed rate cut. Fed Chair Jerome Powell maintained a cautious tone, noting that tariffs could impact inflation data later this year.
Tax Bill and Budget Deficit Concerns
The U.S. Senate passed the Republicans’ budget reconciliation bill by a narrow margin, sparking investor concerns over growing fiscal deficits. The Congressional Budget Office (CBO) projects that the legislation could add $3.3 trillion to the national debt over the next decade, putting further pressure on Treasury markets.
Corporate Movers: Leaders and Laggards
The tech sector weighed on the broader market. Tesla fell over 5% after political threats to withdraw subsidies, while AMD, Broadcom, and Nvidia also declined.
Meanwhile, several stocks posted solid gains:
Las Vegas Sands (LVS), Wynn Resorts (WYNN), MGM Resorts — up 7–8% following a strong Macau gaming revenue report;
Packaging Corp (PKG) — up 7% after acquiring Greif Containerboard for $1.8 billion;
XPeng (XPEV) — reported record deliveries, up 224% YoY;
Nike (NKE) and Hasbro (HAS) — gained following analyst upgrades.
Global Market Sentiment
In Europe and Asia, the Euro Stoxx 50 declined, while a better-than-expected Caixin PMI in China boosted sentiment in emerging markets. Yields on German and UK bonds fell, supporting expectations for a more dovish ECB.
Key Events for Investors
July 9 — Deadline for President Trump’s tax bill;
July 5 — U.S. nonfarm payrolls report;
Next week — Earnings season begins, with S&P 500 profit growth expected at just +2.8% YoY, the weakest since early 2023;
Bond market risks are increasing due to potential Treasury supply growth tied to rising deficits.
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