U.S. equity markets posted solid gains in a holiday-shortened trading week as investors digested a wave of major policy and economic news. Market optimism was fueled by the passage of the “One Big Beautiful Bill Act” (OBBBA) and a stronger-than-expected June jobs report. Meanwhile, trade headlines remain fast and furious as passage of the stimulative tax cuts and government spending in OBBBA may give the White House more latitude to push the envelope in trade negotiations. For the week, the S&P 500 advanced 1.7%, the Dow Jones Industrial Average climbed 2.3%, and the Nasdaq Composite added 1.6%. These gains capped off a remarkable comeback for the first half of the year, with the S&P 500 rising 6.2% through June 30 despite being down more than 15% at its April trough. Meanwhile, long-term rates also bear watching as the 10-year U.S. Treasury yield pushes toward 4.40% as investors weigh the long-term government debt implications from OBBBA.
The centerpiece of last week’s activity was the passage of the Big Beautiful Bill, a sweeping fiscal stimulus package aimed at reasserting American manufacturing leadership and extending the tax cuts delivered under President Trump’s first term alongside new tax relief including exemptions for tips and overtime pay. The bill significantly boosts incentives for companies to onshore production, particularly in strategic sectors like semiconductors. Additionally, the new legislation will boost border security and infrastructure investment while cutting spending on Medicaid and social safety nets and phasing out clean-energy credits. All told, the nonpartisan Congressional Budget Office pegs the total cost at $3.4 trillion in net increased deficit spending over the next 10 years, which the White House hopes to address through its aggressive tariff policy and accelerating domestic growth.
From a market perspective, the boost from tax cuts is seen as the biggest positive for equities near-term, but longer-term concerns around the ballooning government debt burden and the upward pressure on interest rates remain a large overhang. The U.S. fiscal deficit compared to GDP (which hit 6.2% in 2024) was trending to levels only seen during past economic crises before passage of the bill, and Moody’s estimates it will reach near 9% of GDP by 2035. A continued backup in long-term bond yields could put the market rally on ice as it did during the 2022 market sell-off.
With the ink drying on the Big Beautiful Bill, President Trump may look to push more aggressively in trade negotiations. Over the weekend, Treasury Secretary Scott Bessent said that several trade deals will be finalized in the coming days before the end of the 90-day pause on reciprocal tariffs on July 9th. Major U.S. trading partners including the E.U. and China are reported to be nearing agreements. Trading partners where negotiations have stalled will see their tariff rates snap back to the April 2nd levels if no deal is struck by August 1st. To that point, President Trump announced 25% tariffs on Japan and South Korea that will take effect next month. He also threatened additional 10% tariffs on countries aligning with BRICS nations’ “anti-American” policies after the bloc met in Brazil over the weekend. The more confrontational rhetoric has put the U.S. equity market on its back foot in this week’s early trading.
On the economic front, last week’s June jobs report surpassed expectations at the headline level, but the details painted a weaker picture. Nonfarm payrolls grew by 147k in June compared to the consensus forecast of just 120k and the unemployment rate ticked down to 4.1% from 4.2% in May. However, over half of the payroll increase was a jump in state and local government employment due to temporary seasonal factors, while private sector job growth slowed significantly. Additionally, the decline in unemployment was driven by a decline in the labor force as tighter immigration restrictions are reducing the supply of job seekers. Altogether, the report did little to alter expectations for rate cuts from the Fed as the economy sits near full employment, but it did continue to show slowing economic conditions that were evident throughout the first half of the year.
Looking ahead, the coming week brings a relatively quiet economic calendar, with investor attention likely to stay focused on trade headlines and the early stages of second-quarter earnings season. Fed officials will also be out in force with public remarks, and markets will be listening closely for any signals about how fiscal stimulus and trade escalation may be shifting the central bank’s thinking on policy.
