Stocks Rally on the Stronger-Than-Expected US Payroll Report
Stocks are seeing support from today's stronger-than-expected US unemployment report, which raised hopes for continued firm US economic growth. However, stocks were undercut as the 10-year T-note rose by +6 bp to 4.33% on the unemployment report, and as the chances for a Fed rate cut at the next meeting on July 29-30 fell to 6% from 23% on Wednesday.
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Today's June non-farm payroll report of +147,000 was stronger than expectations of +106,000. The payroll report came as a bit of a surprise, given that the markets had been braced for a weak report following Wednesday's news of a -33,000 drop in the US June ADP employment report, which marked the first decline in 2-1/4 years. The stronger-than-expected payroll increase in June was driven by a rise in employment in state and local governments, including public education. By contrast, private payrolls rose just +74,000, suggesting labor market weakness outside the state and local governments. June manufacturing payrolls fell -7,000, matching May's decline. There was a net upward revision of +16,000 in April-May payrolls.
Also, the June US unemployment rate fell by -0.1 point to 4.1%, indicating a stronger labor market than expectations for a +0.1 point rise to 4.3%. The June unemployment rate of 4.1% is up from the 8-decade low of 3.4% posted in April 2023.
In some positive news for the inflation outlook, June average hourly earnings rose +0.2% m/m and +3.7%, which was weaker than expectations of +0.3% m/m and +3.8% and down from May's +0.4% m/m and +3.9% y/y.
Initial unemployment claims fell by -4,000 to 233,000, showing a stronger labor market than expectations of 241,000. Continuing claims were unchanged at 1.964 million, showing a slightly weaker labor market than expectations of 1.962 million.
The May US trade deficit of -$71.5 billion was slightly larger than expectations of -$71.0 billion, and was up from April's revised -$60.3 billion deficit. May exports fell -4.0% m/m. May imports fell -0.1% m/m, adding to April's -16.3% plunge.
The House today will continue to work on the Republicans' reconciliation bill after an all-night session. The House passed an important procedural measure last night with a 219-213 vote, sparking speculation that the House may approve the measure today before leaving for the July 4 recess. House passage would finalize congressional approval and send the bill to President Trump for his signature. The nonpartisan Congressional Budget Office estimates that the bill would add nearly $3.3 trillion to US budget deficits over the next decade. The fiscal stimulus from the bill will be net positive for the US economy, but the risks also increase for an eventual debt crisis in the United States. The reconciliation bill includes a debt ceiling hike necessary to avert a Treasury default when the Treasury runs out of borrowing authority on the so-called "X-date," which falls sometime between mid-August and late September.
The Trump administration's campaign against Fed Chair Powell to cut interest rates continued after Treasury Secretary Scott Bessent said this morning in an interview on Fox Business that the Fed appears to be "a little off" on its interest rate setting process since the 2-year T-note yield of 3.76% at the time of his interview was below the Fed's target range for the federal funds rate of 4.25%-4.50%. However, the 2-year T-note yield rose to 3.88% after the stronger-than-expected US unemployment rate. He also said the administration hopes to fill two empty Fed seats next year, meaning that the administration is hoping Jerome Powell will leave the Fed altogether after stepping down as Fed Chair in May 2026, even though his separate term as a Fed Governor doesn't end until January 2028.
Trade talks are in focus ahead of the July 9 deadline for reciprocal tariff implementation. The EU aims to reach an agreement in principle with the US by the July 9 deadline, according to comments made today by EU Commission President Ursula von der Leyen. In other trade deal news, President Trump on Wednesday said that the US had reached a trade agreement with Vietnam. President Trump said on Tuesday that a trade deal with Japan is unlikely, so the country will most likely pay a tariff of 30%, 35%, or "whatever the number is that we determine."
On the negative side for stocks is the upcoming earnings season, which begins next week. Bloomberg Intelligence data show that the consensus for Q2 earnings of S&P 500 companies is for a rise of +2.8% year-over-year, the smallest increase in two years. Also, only six of the 11 S&P 500 sectors are projected to post an increase in earnings, the fewest since Q1 of 2023, according to Yardeni Research.
Federal funds futures prices are discounting the chances at 6% for a -25 bp rate cut at the July 29-30 FOMC meeting.
Overseas stock markets today are higher. The Euro Stoxx 50 is up +0.15%. China's Shanghai Composite closed up +0.18%. Japan's Nikkei Stock 225 closed up +0.06%.
Interest Rates
September 10-year T-notes (ZNU25) today are down -12 ticks. The 10-year T-note yield is up +5.5 bp at 4.332%. T-note prices fell sharply today after the US payroll and unemployment rate reports showed a stronger-than-expected US labor market, substantially reducing the odds of a Fed rate cut later this month. The T-note market is also being undercut as the House appears to be moving toward passing the Republicans' reconciliation bill, which will boost the US budget deficit by a total of $3.3 trillion over the next 10 years, according to the CBO, thus requiring the Treasury to sell more debt to fund the deficit. T-note prices are also being undercut as the 10-year breakeven inflation expectations rate today rose +2 bp to a 2-week high of 2.332%.
European government bond yields are trading lower. The 10-year German bund yield is down -2.7 bp at 2.637%. The 10-year UK gilt yield is down -4.4 bp at 4.568%.
Swaps are discounting the chances at 6% for a -25 bp rate cut by the ECB at the July 24 policy meeting.
US Stock Movers
FedEx (FDX) is up more than +2% after a double upgrade from BNP Paribas Exane, which said the stock is oversold and that it expects FedEx to continue to outperform its competitor UPS.
ASML (ASML) is down more than -1% after a report by Nikkei Asia that Samsung Electronics is slowing down the construction of a chip factory in Texas due to low demand for the plant's production.
Datadog (DDOG) is up more than +8% after S&P announced that it will replace Juniper
Networks in the S&P 500, effective on the opening of trading on July 9.
Synopsys (SNPS) and Cadence Design (CDNS) are up more than +4% after the Trump administration lifted US export license requirements for chip design software sales in China, which should allow those companies to resume selling software in China.
Olo (OLO) is up more than +13% today after news that private equity firm Thoma Bravo will acquire the restaurant software provider for $10.25 per share in cash.
Earnings Reports (7/3/2025)
MarketAxess Holdings Inc (MKTX).
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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But it gradually expanded, with brands seeking to avoid a wide variety of political issues, or platforms that supported them. In investigations and lawsuits, lawmakers and other high-profile conservatives have argued that ad practitioners, brand safety tech vendors, and industry groups forced the brand safety pendulum to swing too far into partisan areas, unfairly depriving right-leaning outlets of ad dollars. Media companies on the left have said they, too, have been harmed by advertisers who deemed news sites as unsafe for brands. "What may have started as a good idea expanded, and then became too broad," said Mark Penn, CEO of the advertising holding company Stagwell. "Consequentially, it wasn't really about brand safety — it became almost brand censorship." 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In a statement, the WFA said GARM provided tools to help advertisers better exercise their freedom to choose where to place their ads in the best interests of their brands, and that it was always voluntary and pro-competitive. "WFA will continue to fight these allegations, and we are confident that the US judicial system will find in our favor," the statement said. While GARM is no more, the lawsuits and the Judiciary Committee's investigation continue, and the FTC has joined the brand safety battle under the Trump administration. Ferguson, the FTC chair, has said that maintaining a free ad market and free speech is a top priority and that he hopes other ad companies will adopt policies similar to those in the Omnicom-IPG consent decree. That notice extends to other advertising vendors in the brand safety sphere. In May, the FTC sent sweeping civil investigative demands to media watchdogs and rating firms, including Media Matters and Ad Fontes Media, seeking information about their brand safety practices. In one such letter, viewed by BI, the FTC sought documents related to relationships with GARM, the publicly traded ad verification firms Integral Ad Science and DoubleVerify, and other entities that track and characterize "misinformation," "hate speech," "false" or "deceptive" content, and other similar categories. While the FTC's actions have made many in the ad industry nervous, some execs consider much of brand safety to be, as Stagwell's Penn puts it, a "fabricated issue." Penn said there were only limited situations in which brands might really be negatively affected by where their ads appeared. "From the polling I've done, conservatives think that they were being censored and demonetized, and liberals think they were being censored, so nobody was particularly happy about what was going on," Penn said. (Stagwell owns the public opinion and advisory firm The Harris Poll.) Will the brand safety crackdown benefit news publishers? Execs at The Daily Wire say the scrutiny on brand safety was warranted and has gotten results. "My team is inside of the bigger agencies, having discussions, whereas the door was automatically shut 12 to 16 months ago," said The Daily Wire's SVP of ad revenue, Christine Hoffmann. "We're getting business from Fortune 500 companies, like Chevron, like Amazon, like Paramount, and that was business that was nonexistent to us." Other conservative news outlets, including Fox News and The National Review, have also noticed a bump in advertising interest since Trump took office for the second time. Ad industry insiders previously told BI this reflected advertisers' realization that half of the country voted for Trump, but that it could also be a signal of advertisers hedging against political risk. The notion that the crackdown on brand safety will provide a long-term bump to news publishers is untested and, for many industry insiders, feels unlikely. An executive from the media buying giant GroupM testified in a House Judiciary Committee hearing last year that just 1.28% of its clients' global ad budgets went toward news outlets. Meanwhile, Alphabet, Meta, and Amazon — with their superior scale and adtech — are set to take in more than half of global ad spending outside China this year, according to the latest forecast from the World Advertising Research Center. Omnicom has agreed to be audited to demonstrate its compliance with the FTC's proposed consent decree, which also includes an agreement not to create block lists, unless requested to do so by clients. The FTC's provisional agreement says Omnicom-IPG can't collude with other firms to steer client ad spend based on political ideologies, which might cause some advertisers to simply opt to avoid news altogether. As BI previously reported, some ad industry insiders and analysts think the government's crackdown on brand safety is an overreach that will hurt publishers of all kinds while further consolidating power with the tech giants. New tools could help brands avoid the censorship label, but there's no room for GARM 2.0 Some in the ad industry tell BI they're hopeful that brand safety could enter an apolitical era, powered by tech rather than individual decisions over blunt filters. "My view is that AI will bring greater nuance to brand safety — making it more effective for buyers and less restrictive for sellers," said David Kohl, cofounder of the performance marketing firm Symitri. Kohl said startups like Mobian are building models that assess context, user sentiment, and real-time ad performance to identify which media environments deliver and which don't. Elsewhere, Stagwell is creating what Penn describes as a politically neutral news marketplace, in partnership with the adtech company The Trade Desk, enabling advertisers to buy multiple news sites at once, according to demographics. While brand safety might become more tech-enabled, it seems unlikely there will be a GARM 2.0 for some time yet. "It would be far too easy to become a target," said Lisa Macpherson, a former marketing executive who now serves as the policy director of Public Knowledge, a tech policy consumer advocacy group. Just ask the advertising agency group Dentsu. Late last year, Dentsu quickly exited its involvement with the creation of a new coalition that had intended to encourage ad investments in "credible" news. Days after the press release about the coalition was published, the House Judiciary Committee requested documents from the ad firm, having noticed similarities to GARM. In response, Dentsu said it had decided "not to pursue the initiative" nor "pursue any other effort with similar aims." Macpherson said advertisers would continue to do what's necessary to protect their investments in their brands. Yet, as the threat of lawsuits and document demands related to GARM rumbles on, people in the ad industry will likely avoid using the phrase "brand safety" in emails or marketing materials. "They may describe it differently," Macpherson said. "They will be very careful to couch it in language that evokes their constitutional right" to send ad dollars or not spend money on certain media outlets based on the suitability for their individual brands, she added. Zaneis of TAG said the recent government and legal scrutiny of brand safety practices might have been the jolt the industry needed, forcing marketers to pay closer attention to an issue that had gotten out of hand. "We may not like how we got here as an industry, but it's where we should have been all along," Zaneis said.
