July 3, 2025

Worldwide Headlines

1. The second quarter was constructive for long-term investors. Over the last three months, the S&P 500 was higher in price by 10.57% and closed at a new record high of 6,204.95. This is impressive given the angst about the economy, Israel/Iran and the tariffs. In addition, the Bloomberg Barclays Govt/Credit Intermediate Bond Index gained 0.73% in price. This was a very constructive quarter for long-term investors that remained calm during the ‘policy driven volatility” that was evident in the month of April.
2. U.S. economic reports are mixed this week, but employment seems solid. The weak economic reports this week consisted of construction and exports. However, there were three employment reports this week (Monthly Employment Report, JOLTS Job Survey, Weekly Initial Jobless Claims) that were all better than expected. In other words, employers are likely to still have difficulty finding workers where needed, while employees are still in-demand.
3. Trade Talk is coming back in a positive way. So far, there have been two cabinet secretaries, Lutnick and Bessent, that have opined on the potential to extend the April 9 deadline for trade agreements with a long list of countries. In addition, there are headlines around other countries (China, EU, Japan) with trade deals as a work in progress. This helps calm markets and allows stocks to move to new closing highs. More to come on this in the upcoming weeks.

Economic Reports

1. ISM Manufacturing Index reading for June showed a reading of 49.0. While this is slightly higher than the May figure, it is still below the key 50 level (growth vs. contraction) where it has been in 31 of the last 33 months. This measure from the Institute for Supply Management also has New Orders contracting by the most in three months (46.2 reading) and Employment contracting for five straight months (45.0 reading).
2. Construction Spending in May fell by 0.3%. Two of the three components of construction spending (Residential, Commercial) have now been negative for the last four months. Public construction spending was positive for the last three months.
3. JOLTS Job Opening Survey for May showed a larger than expected 7.769 million jobs open in the country. This is the highest level since last November, driven higher mainly by leisure and hospitality. Vacancies in the hospitality sector accounted for three quarters of the May openings, according to the Bureau of Labor Statistics.
4. Total Vehicle Sales in June fell to a 15.34 million annualized rate. This is the slowest annualized rate since August 2024 and well below the monthly average of 16.27 million so far this year.
5. Trade Balance in May rose sharply from April to -$71.5 billion. (NOTE: A year ago the monthly deficit was -$74.456 billion). Inside the report, though, Exports declined by 3.8% from the prior month to $279.0 billion.
6. Weekly Initial Jobless Claims fell to 233,000 with Continuing Claims flat from the prior week at 1.964 million.
7. Factory Orders from May rose by an as expected 8.2% from the prior month. This was the biggest monthly increase since 2014, led by orders for Non-Defense Capital Goods and Defense itself.
8. ISM Services Index reading for June was slightly higher than expected at 50.8, which crosses above the key 50 line, after a reading of 49.9 last month. Additionally, the New Orders component of the report reached a reading of 51.3 this month, up from 46.4 last month. Good report for the Services companies.
9. The Monthly Employment Report for June showed a better than expected +147,000 net new jobs in the month with the Unemployment Rate falling to 4.1%. In addition, the net new jobs from May was raised by 5,000. However, the private payrolls did fall from 137,000 in May to 74,000 in June, so June employment was driven by hiring in state and local government employment.

Markets this Week (mid-day Friday)

1. U.S. Dollar Index are lower. DXY at 97.130 or -0.24% so far this week (1 yr. range = 96.776 to 109.956).
2. Bond yields are higher. Two-year Treasury yield gains to 3.87%; 10-year up to 4.33%.
3. Stocks are higher. All five of the major global stock indexes we track are higher so far this week led upward by U.S. small and mid-cap stocks.
4. Commodities are higher. Four of the six sectors in the Bloomberg Commodity Index are higher so far this week, only Livestock and Softs are lower.

Next Week

1. Economic Reports
   • NFIB Small Business Optimism Index, Consumer Credit, Wholesale Trade
     • U.S. consensus QoQ real GDP est.: Q1 = -0.5%, Q2 = +2.1%, Q3 = +0.8%, Q4 = +1.2%
     • U.S. consensus YoY inflation est.: Q1 = +2.7%, Q2 = +2.5%, Q3 = +3.1%, Q4 = +3.3%
2. Earnings Reports (Q2-2025 quarterly earnings season begins July 11th)
   • Q2-2025 S&P 500 EPS estimate at the beginning of the period = +2.78%
   • Q2-2025 S&P 500 summary to date: n/a reported; n/a beat estimate; YoY EPS = n/a
   • S&P 500 YoY EPS estimates: Q1-2025 = +13.5%, Q2-2025 = +2.8%, Q3-2025 = +6.7%, Q4-2025 = +6.1%
3. Events
   • Central bank meetings in New Zealand, Malaysia, Korea, Peru
   • July 9 deadline for ‘reciprocal’ tariff extension
   • FOMC meeting minutes from June