U.S. equity markets were closed Friday for the Independence Day holiday, making Thursday's session the final full day of trading before the long weekend. The Dow Jones Industrial Average managed to eke out a fresh all-time high, closing at 52,900.07, up 1.14% on the day and 2.0% for the week. In contrast, the S&P 500 ended essentially flat, rising just 0.01 point to 7,483.24, while the Nasdaq Composite slipped 0.80% to 25,832.67, though it still gained 2.1% for the week.
Chip Stocks Under Pressure
The standout weakness was in the semiconductor space, where the PHLX semiconductor index tumbled 5.4% in its second consecutive steep decline. Nvidia (NVDA) edged down 1.4%, while SanDisk (SNDK) plunged 14.1%. Bruce Zaro, managing director at Granite Wealth Management, noted that investors were likely locking in profits after the group's remarkable 78% year-to-date gain. The selloff was selective, however, as Apple (AAPL) jumped 4.8% on a Nikkei Asia report that it plans to launch five new iPhone models, providing crucial support for the Dow.
Rotational Dynamics and Jobs Data
The market's internal dynamics were notable. On the NYSE, advancers beat decliners by a 1.42-to-1 ratio, but on the Nasdaq, decliners edged out advancers 1.05 to 1. The S&P 500's flat finish masked a sharper rotation beneath the surface. Tesla (TSLA) dropped 7.5% despite reporting second-quarter deliveries that beat expectations, as strong numbers failed to steady crowded long positions ahead of the holiday break.
The Labor Department's June jobs report provided a lift to the Dow but sent a mixed signal on growth. Nonfarm payrolls increased by 57,000, while the unemployment rate fell to 4.2%. However, the labor force shrank by about 700,000 in June, and April and May payrolls were revised down by a combined 74,000. Daniel Zhao, chief economist at Glassdoor, described the drop in the unemployment rate as "good news for the wrong reasons," as it reflected people leaving the labor force rather than an improvement in hiring.
Fed Policy and Rate Expectations
Rate expectations shifted following the jobs report. According to CME FedWatch, the probability of a September rate hike dropped to 55% from 64.1%. Adam Sarhan, CEO at 50 Park Investments, said the data "takes the pressure off the Fed" for now, though "doesn't mean the fear of inflation is over." The next major catalyst for markets will be the release of the Federal Reserve's minutes on Wednesday. Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, said the focus will be on "how incrementally hawkish" policymakers appear. James Ragan, co-CIO and research director at D.A. Davidson, warned that a tighter Fed stance would be "a risk to the market and the valuations."
Earnings Season Ahead
With the S&P 500 having gained 14.9% in the second quarter — its biggest quarterly advance since 2020 — attention now turns to corporate earnings. Analysts expect second-quarter earnings for the S&P 500 to rise over 24% year-over-year, according to LSEG IBES data. Key reports next week include Delta Air Lines (DAL) and PepsiCo (PEP). Keith Lerner, chief investment officer at Truist Advisory Services, said companies will need to "validate the earnings trajectory" to sustain the market's momentum.
