What Happened Last Week
- All-Time Highs: Although shortened by the holiday, last week saw the major indices make fresh all-time highs.
- Labor Data: The jobs report came in much better than feared, dampening rate cut expectations.
- Big Beautiful Bill: President Trump’s spending bill was signed into law on July 4.
What We’re Watching This Week
- Trade Negotiations: Despite mixed messaging from the administration, investors continue to fade trade risk.
- Bond Auctions: The budget bill’s passage may revive fiscal concerns and heighten focus on the Treasury’s 10- and 30-year bond auctions.
- Investor Rotation: The risk-on move broadened last week, with small caps joining the rally. Price action this week will help determine whether the rally has staying power.
Investment Management Team’s Views
Positive sentiment improved last week, driven by stronger-than-expected labor data, signs of progress on trade negotiations, and the passage of the reconciliation bill, which cleared both the House and Senate before being signed into law by the President. While the bill’s spending provisions have alarmed some Congressional fiscal hawks, the market expects the legislation to have a stimulatory effect and help reintroduce growth into a modestly slowing economy. Front-end yields rose as traders pared bets on a July rate cut by the Fed due to the better-than-expected labor data. This week’s economic data is unlikely to alter those expectations significantly.
With the White House seemingly moving the July 9 trade deal deadline to August 1, investors have been happy to fall back on the post-Liberation Day playbook of betting that President Trump will ease trade tensions at the behest of the market. Market momentum indicators are broadly positive, suggesting the current rally could continue—unless two things change: investors begin to believe that Trump is willing to disrupt markets with trade policy, or corporate earnings results disappoint in the upcoming season. Our read of positioning, however, indicates that the tailwinds from underweight investors are largely behind us as we enter the less liquid summer trading environment.
This week is light on the catalyst front, with only a few economic data releases and an earnings report from Delta Airlines on the calendar. Several central banks are set to convene policy meetings and minutes from the last Federal Open Market Committee (FOMC) meeting will be released, but these releases are unlikely to move markets or change rate expectations. Treasury Secretary Bessent said early Monday that announcements on trade were expected within the next 48 hours. With shifting deadlines and mixed messaging, investors are likely to remain focused on trade announcements rather than any of the secondary economic data that will be published this week.
