Stock Markets React to Mixed Economic Signals and Legislative Developments

The S&P 500 Index ($SPX) (SPY) is down -0.06%, the Dow Jones Industrials Index ($DOWI) (DIA) has decreased by -0.11%, while the Nasdaq 100 Index ($IUXX) (QQQ) shows a modest increase of +0.20%. June E-mini S&P futures (ESM25) are down -0.03%, whereas June E-mini Nasdaq futures (NQM25) have risen by +0.18%.

Market Overview and Reactions

Today’s trading shows a mixed performance among stock indexes. The S&P 500 and Dow Jones Industrials have dipped to 1.5-week lows. Initial declines were linked to a rise in bond yields following the House’s passage of President Trump’s tax and spending bill. The 10-year T-note yield reached a 3.25-month high of 4.625%. However, yields later stabilized, contributing to a recovery in stocks, driven in part by Fed Governor Waller’s dovish remarks. He suggested that if the Trump administration’s tariffs level off at about 10% this summer, it could set the stage for potential rate cuts in the second half of the year.

Support for stocks also stemmed from positive economic indicators, including a drop in weekly jobless claims to a one-month low, coupled with an unexpected rise in the May S&P manufacturing PMI.

Legislative Developments and Economic Concerns

This week’s central focus is on the implications of President Trump’s tax and spending bill, which averts an impending year-end tax increase but may exacerbate the US deficit. As the bill progresses to the Senate, some Republican factions are advocating for significant modifications, with a vote anticipated by August. Concerns linger that this tax legislation could significantly inflate the deficit at a time when the attractiveness of US assets is diminishing.

Investors are cautious as they navigate a trade war, a recent downgrade of the US credit rating from Moody’s, and unfavorable projections surrounding the US budget deficit in the reconciliation bill.

Key Economic Indicators

Recent data from the US reveals that initial unemployment claims fell by 2,000 to 227,000, indicating better-than-expected labor market strength. Additionally, the May S&P manufacturing PMI unexpectedly increased by 1.9 points to 52.3, contrary to forecasts that predicted a decline.

Bitcoin and Cryptocurrency Market Update

Bitcoin (^BTCUSD) surged by over +2%, achieving a new record high today with advancements in stablecoin legislation in the US Senate. A bipartisan effort is underway to finalize a regulatory bill this week.

Market Outlook and Upcoming Data Releases

Looking ahead, market attention will be on key tariff news and possible trade deals. G-7 finance ministers and central bank governors are convening this week in Braniff, Canada. Later today, April existing home sales are projected to rise by +2.0% month-over-month to 4.10 million, while Friday’s new home sales are expected to decrease by -4.7% month-over-month to 690,000.

Current market expectations assign only a 5% probability to a -25 basis point rate cut during the next FOMC meeting scheduled for June 17-18.

Earnings Season Recap

The Q1 earnings reporting season is nearing its end. Almost 90% of S&P 500 companies have reported, with 77% exceeding analysts’ expectations—the highest rate since Q2 of 2024. Earnings growth for Q1 stands at +13.1%, significantly above predictions of +6.6% prior to the season. However, full-year corporate profit growth forecasts for 2025 have decreased to +9.4%, down from +12.5% in early January.

Global Market Performance

International stock markets are mostly lower today. The Euro Stoxx 50 fell by -1.02%. China’s Shanghai Composite closed down -0.22%, and Japan’s Nikkei 225 decreased by -0.84%, marking a two-week low.

Interest Rates and Bond Markets

June 10-year T-notes (ZNM25) have increased by +3 ticks, while the yield on the 10-year T-note has decreased by -0.8 basis points to 4.591%. After initial declines following the passage of Trump’s tax and spending package, T-note prices recovered as short-covering emerged. The unexpected fall in weekly jobless claims suggests labor market strength, casting a hawkish outlook for Fed policies.

In Europe, government bond yields are trending upward, with the 10-year German bund yield rising by +0.1 basis points to 2.647%. The UK’s 10-year gilt yield climbed to a six-week high of 4.799%, increasing by +0.8 basis points.

Economic Data from Europe

The Eurozone’s May S&P manufacturing PMI rose by +0.4 to a 2.75-year high of 49.4, surpassing expectations. However, the S&P composite PMI experienced an unexpected decline of -0.9 to a six-month low of 49.5, diverging from the anticipated increase.

The ECB’s April meeting summary reflected concerns over the negative economic impact of US tariffs and indicated a bias towards potential monetary easing. The German May IFO business climate index rose by +0.6 to an 11-month high, offering a glimmer of optimism amid uncertain conditions.

UK Manufacturing Update

The UK’s May S&P manufacturing PMI fell by -0.3 to 45.1, below forecasts for an increase. Swaps indicate a 93% probability of a -25 basis point rate cut by the ECB at their June 5 policy meeting.

US Stock Movers

Crypto-related stocks are gaining momentum today, with Bitcoin’s price climbing significantly. MARA Holdings (MARA) is up over +7%, and Riot Platforms (RIOT) has risen more than +6%. MicroStrategy (MSTR) leads the Nasdaq 100 with a more than +5% increase, while Coinbase Global (COIN) is up by more than +4% within the S&P 500.

Advanced Auto Parts (AAP) has seen its stock price surge by over +42% following a strong Q1 report, projecting full-year net sales above expectations. Snowflake (SNOW) increased more than +9%, driven by Q1 revenues that surpassed forecasts and an upward revision in their full-year product revenue guidance.