(Bloomberg) — Wall Street traders drove a rotation out of the tech megacaps that had powered stocks from the brink of a bear market. Bond yields rose as an increase in job openings dimmed the outlook for Federal Reserve rate cuts. The dollar remained at its lowest since 2022.
While the S&P 500 barely budged after notching all-time highs, a violent rotation took place at the start of July, with money chasing losers at the expense of recent winners. Momentum was unwinding at a pace not seen in over two years, and the small-cap Russell 2000 index beat the tech-heavy Nasdaq 100 by the most since April.
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“If you’re long recent winners and are feeling the pain today, we would not be making any dramatic portfolio shifts just yet,” said Bespoke Investment Group strategists. “It could be the start of a longer-term shift that develops, but a one-day move is simply too soon to tell.”
Short-dated Treasuries, which are more sensitive to imminent Fed moves, underperformed longer maturities.
US job openings hit the highest since November, largely fueled by leisure and hospitality, and layoffs declined. Fed policymakers have consistently characterized labor-market conditions as strong in recent weeks.
“As long as the labor market remains solid, the US economy can continue to chug ahead, while helping reduce the risk of stagflation” said Bret Kenwell at eToro. “It would also buy the Fed more breathing room when it comes to interest rates.”
Speaking Tuesday during a panel in Portugal, Fed Chair Jerome Powell repeated that the central bank probably would have cut rates further this year absent Trump’s expanded use of tariffs. Still, when asked if July was too soon for a rate cut, Powell didn’t rule out the possibility.
The government’s June employment report, due Thursday, is expected to show a slowdown in nonfarm payroll growth and an uptick in the unemployment rate.
“Federal Reserve interest-rate policy is likely on hold for now,” said Josh Hirt at Vanguard. “If the labor market remains on the trajectory we expect, the Fed can afford to be patient. We anticipate the Fed will be able to make two more rate cuts later this year in this environment.”
Separate data Tuesday showed US factory activity contracted in June for a fourth consecutive month as orders and employment shrank at a faster pace, extending the malaise in manufacturing.
“While the hit to manufacturing activity from tariffs so far appears to have been limited, the further small rise in the prices paid index last month adds to evidence that firms are facing higher costs as a result,” said Thomas Ryan at Capital Economics.
Meantime, Trump said he is not considering delaying his July 9 deadline for higher tariffs to resume and renewed his threat to cut off talks and impose duty rates on several nations, including Japan. And his $3.3 trillion tax and spending cut bill passed the Senate.
Corporate Highlights:
- Sweeping tax legislation passed by the Senate would make it cheaper for semiconductor manufacturers to build plants in the US, delivering a win to chipmakers and boosting US efforts to expand the industry domestically.
- Tesla Inc. sank as Trump threatened to withdraw subsidies from Elon Musk’s companies and examine the billionaire’s immigration status.
- Boeing Co. said Stephen Parker will oversee the defense, space and security unit on a permanent basis, as Chief Executive Officer Kelly Ortberg molds his top leadership team, including the appointment of a new chief financial officer.
- Ford Motor Co.’s electric vehicle sales plunged 31.4% in the second quarter after the automaker ordered dealers not to sell its battery-powered Mustang Mach-e model due to a safety flaw that could lock occupants in the car.
- UnitedHealth Group Inc. and Memorial Sloan Kettering Cancer Center resolved a contract dispute that threatened to interrupt treatment for thousands of cancer patients in the New York City area.
- AMC Entertainment Holdings Inc. said it reached an agreement with a majority of bondholders to end litigation that resulted from the movie theater chain’s debt restructuring last year.
- Wolfspeed Inc., a chipmaker caught in President Donald Trump’s push to reshape Biden-era tech subsidies, filed bankruptcy to enact a creditor-backed plan to slash $4.6 billion in debt.
- Macau’s monthly gaming revenue rose 19% in June, exceeding analyst expectations as visitors poured in to the world’s biggest gambling hub for Cantonese pop concerts and other entertainment offerings.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.1% as of 4 p.m. New York time
- The Nasdaq 100 fell 0.9%
- The Dow Jones Industrial Average rose 0.9%
- The MSCI World Index fell 0.1%
- Bloomberg Magnificent 7 Total Return Index fell 1.5%
- The Russell 2000 Index rose 0.9%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.1793
- The British pound was little changed at $1.3741
- The Japanese yen rose 0.2% to 143.75 per dollar
Cryptocurrencies
- Bitcoin fell 2.1% to $105,393.95
- Ether fell 4% to $2,404.6
Bonds
- The yield on 10-year Treasuries advanced two basis points to 4.25%
- Germany’s 10-year yield declined three basis points to 2.57%
- Britain’s 10-year yield declined three basis points to 4.45%
Commodities
- West Texas Intermediate crude rose 0.9% to $65.70 a barrel
- Spot gold rose 1% to $3,337.42 an ounce
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