All Eyes On The House; Weak U.S. Dollar; Tesla Shares Sink

Forbes

2 days ago

Shares of Tesla fell on Tuesday as the war of words between Elon Musk and President Trump heated up ... More again over Trump's Big, Beautiful Bill. (Photo by)
Key Takeaways:
Markets were mixed on Tuesday as we reached the midway point for the shortened holiday week. The S&P 500 was down marginally, despite nine of the eleven sectors in the S&P closing higher. Shares of Tesla, which lost 5%, weighed heavily on tech stocks, pulling the Nasdaq Composite lower by 0.8%. However, both the Dow Jones Industrial Average and Russell 2000 ended the day higher, with both indices gaining 0.9%.
The steep drop in Tesla shares followed a reemergence of the feud between Elon Musk and President Trump. At the core of their disagreement is Trump's Big, Beautiful Bill. After a marathon session, the Senate narrowly passed their version of the legislation with Vice President Vance having to cast the deciding vote. The bill is now back in the hands of the House, where it faces significant challenges. Roughly a dozen Republican members have said they will vote against the bill, in addition to all Democrats opposing it. I think the market risk here is more on the side of Congress not passing the bill.
At the same time Congress is working on that legislation, we're just a week away from President Trump's tariffs taking effect. Last month, a limited deal was struck with the U.K. and more recently, a truce was reached with China. However, beyond those deals, little progress has been made with other countries. Trump has said he will not issue any more extensions and next week is the deadline.
One of the more interesting aspects of the trade war is that many economists have been expecting it to result in inflation. Thus far, there is little evidence of that inflation, but we've also yet to see most of the more significant tariffs kick in. However, an often-overlooked aspect to this is the weakening of the U.S. dollar.
The dollar is off to its worst start to the year since 1973. That weakness could be a foreshadowing of the inflation to come. A weak dollar and inflation are essentially two sides of the same coin. Ultimately, it results in reduced purchasing power. If President Trump does indeed move forward with tariffs next week, it could produce a double-whammy of higher prices combined with a weaker dollar. This is something worth keeping an eye on, especially as the July 9 deadline looms.
In stock specific news, shares of Apple gained yesterday and are indicated higher by 1.5% in premarket. On Tuesday, the company said it was exploring outsourcing its Artificial Intelligence (AI) as the company has struggled to produce its own AI model. Constellation Brands announced earnings after the close on Tuesday. Despite missing on forecasts, the company reiterated its full year forecast. Shares are indicated fractionally higher in premarket.
For today, I expect volume to dry up as the day progresses. Thursday, markets will close early and then be closed on Friday for the July 4th holiday. Therefore, if there is going to be any action today, I expect it to happen early. However, one interesting note is that we'll get the June employment numbers tomorrow morning. As I've mentioned before, when market volumes are low, news that might otherwise go unnoticed can have an outsized impact. The jobs report is hardly something that will go unnoticed, so I wouldn't be surprised if we see some price action on low volume tomorrow.
Lastly, I just want to wish everyone a Happy 4th of July. We're about to enter the 250th year anniversary of this country which is pretty incredible. The progress that's been made in that short a period of time is nothing short of amazing. So, enjoy your hotdogs, have some apple pie and leave the fireworks to the professionals. As always, I would stick with your investing plan and long-term objectives.
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