Michael Reinking:

Hello, I'm Michael Reinking, Senior Market Strategist at the New York Stock Exchange, and this is Market Storylines. Every week, we are here to keep you up to date on the key trends and events driving global markets, and we were last with you just before the end of June, before taking a brief hiatus around the holiday. Now, hopefully you all enjoyed some time with friends and family and a big, beautiful barbecue. Now, there has been a lot going on, so let's dive into this week's edition of Market Storylines.

Now, despite all of the headlines, uncertainty, and volatility in the first half of the year, US markets ended on a positive note. At the end of the second quarter, the S&P 500 was sitting at a new all-time high, up five point a half percent, though small and mid-cap indices were still modestly lower year to date. Now, as Q3 has gotten underway, we started to see some rotational activity, which is not uncommon around the start of the quarter. And that performance gap has been narrowing. Now, the Russell 2000 finally broke above its 200-day moving average for the first time since February, and is in the green for the year, but still about 9% below its post-election high.

Now, during the holidays shortened week, Congress put in some overtime with a record-breaking vote-a-rama in the Senate to pass its version of President Trump's tax and spending bill. And after some tense negotiations in the House and a record-breaking filibuster speech by minority leader of the House, Hakeem Jeffries, the House passed the Big, Beautiful Bill by a vote of 218 to 214, sending it to President Trump's desk to be signed on the holiday just as he had drawn it up. Now, the bill makes permanent many of the aspects of the 2017 Tax Cuts and Jobs Act, introduces temporary no tax on tips and overtime, an increase in salt deduction. There are increases in spending on defense and border security, and one potentially important part of the bill which could drive investment is the acceleration of expenses for investment in equipment and R&D. The bill also extends the debt ceiling, removing a potential overhand.

On the other side of the ledger, helping to offset some of that, are limitations on the eligibility and tighter restrictions on Medicaid and a reduction of clean energy incentives. One other offset is the potential revenue generated from tariffs, which is a perfect segue into trade. Now, this week was the end of the 90-day tariff reprieve. Ahead of that, the administration announced the deal with Vietnam sitting at 20% tariff rate on imported goods and levies of 40% on trans shipments. Now, despite positive commentary from the administration that other deals would be forthcoming, they have not come to fruition yet. Now, early this week, President Trump began sending letters to counterparts laying out new tariff rates that would go into effect on August 1st. Now, letters have gone out to many smaller trading partners, but also included Japan and South Korea and Brazil last night.

Now, investors continue to wait on updates from the EU, India, and Taiwan. For all intents and purposes, these letters extend the deadline for negotiations, which President Trump says is now set in stone. Now, this extension adds some more time to the waiting game for both businesses and the Federal Reserve as they wait to see the ultimate policy and the impacts of tariffs. Now, outside of trade letters, President Trump introduced a 50% tariff on copper and has teased a supersized tariff on pharmaceuticals, which would go into place down the road. Now, in general, markets have taken all of these headlines in stride.

Now, the economic data over the last couple weeks continues to point to a resilient economic backdrop with the ISM surveys about in line with estimates. Last week's jobs report showed 147,000 jobs added to the economy ahead of estimates, along with small positive revisions to the two previous months, breaking a recent trend. Now, while the report was solid, it was not quite as strong as it looks on the surface. Surprisingly, about half of the hiring were government jobs. Now, federal jobs did fall by 7,000, but there was a big pickup in state and local government education, which is likely due to some seasonal impacts.

Now, private sector hiring was only up 74,000, its lowest level since last October, driven by services, namely healthcare and social assistance. Now, the unemployment rate ticked down to 4.1%, largely driven by a decrease in the labor force and an unwind of the immigration dynamics that helped to push the rate up during last year. Now, this report was by no means perfect, but did seem to cement the Fed's position to remain on hold at this month's meeting.

Now, the extension of trade deadlines adds a layer of complexity for Fed Chair Powell, who remains under constant barrage of attacks and calls from the administration to lower rates. Now, the odds for a September rate cut have been moving a bit lower over the last week, and the 10 and 30-year auctions this week were well received, which has helped yields reverse some of the post jobs move higher. The economic data over the last couple of weeks continues to point to a resilient economic backdrop with the ISM surveys about in line with estimates. Last week's jobs report showed 147,000 jobs added to the economy ahead of estimates, along with small positive revisions to the two previous months breaking a recent trend.

Now, while the report was solid, it was not quite as strong as it looks on the surface. Surprisingly, about half of the hiring was in government jobs. Federal jobs did fall by 7,000, but there was a big pickup in state and local government, primarily in education, which is likely due to some seasonal impacts. Now, private sector hiring was only up 74,000, its lowest level since last October, driven by services, namely healthcare and social assistance. Now, the unemployment rate ticked down to 4.1%, driven by a decrease in the labor force and an unwind of the immigration dynamics that helped to push the rate up last year. Now, the report was by no means perfect, but did seem to cement the Fed's position to remain on hold at this month's meeting.

Now, the extension of trade deadlines adds a layer of complexity for Fed Chair Powell, who remains under constant barrage of attacks and calls from the administration to lower rates. Now, the odds for a September rate cut have been moving a bit lower over the last week. Also to note, the 10 and 30-year auctions this week were well received, which has helped yields reverse some of the post jobs report move higher.

Now, looking ahead to next week, the key US economic data includes the inflation data and retail sales, as well as a bunch of economic data out of China. Now, more updates on trade are likely forthcoming, but at least for a couple of weeks, the focus could shift back to the micro from the macro with the official start of earnings season. Now, major financials begin reporting on Tuesday, and there are some industrials in the back half of the week. On that note, this morning, Delta, which was the first company to pull guidance last quarter, reinstated its estimates pointing to an improvement of demand, which is helping airlines and other travel related stocks trade higher. However, there were also a couple of disappointments in the food and consumer products companies this morning as well. Now, keep in mind, next week is also options expiration. That's going to do it for this week. Consider yourself caught up. If you'd like today's episode, please tell a friend or leave a comment wherever you listen to your podcasts. I'm Michael Reinking. Thanks for joining me. I'll talk to you again next week.

Speaker 2:

That's our conversation for this week. Remember to rate, review, and subscribe wherever you listen, and follow us on X at Icehouse Podcast. From the New York Stock Exchange, we'll talk to you again next week inside the ICE House. Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of the information, and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.