Payroll Beat and GOP-Taxation Progress Push Stocks Higher: July 3, 2025

Stocks are soaring to fresh all-time highs as this morning’s stronger-than-projected jobs report coincides with expectations that the House of Representatives will pass the GOP’s signature tax bill sometime this afternoon. The developments are sparking risk-on animal spirits as an acceleration in hiring offered the second-highest payroll gain of the year and added to evidence that the health of the cycle is just fine. Meanwhile, legislative progress is bolstering growth projections and widening the path to continued expansions in corporate earnings. But Treasuries aren’t participating in the rally and are going the other way, as a tick lower in unemployment is extending the Fed’s journey down the monetary policy stairs. The yield curve is climbing to a taller profile in bear-flattening fashion led by the short end, as fixed-income players point to September as the month when the central bank will resume its easing measures. Conversely, investors are picking up equities in all sectors minus consumer staples, increasing their greenback exposures and buying bitcoins and forecast contracts. Commodity majors ex silver are facing selling pressure; however, and traders are unwinding hedges amidst reduced demand for volatility protection instruments.

Job Growth Picks Up

Job growth accelerated to its second fastest pace of the year last month as non-cyclical sectors boosted results once again, according to the Bureau of Labor Statistics Employment Situation Summary. The 147,000 headcount additions exceeded the median estimate of 110,000 by a wide margin and came in above May’s 144,000. The government and private education/health services segments led the gains, adding 73,000 and 51,000 during the period followed by the economically sensitive leisure/hospitality and construction components, which expanded rosters by 20,000 and 15,000. All other gaining areas posted increases of 7,500 or below. Weighing on results were the professional/business services, manufacturing, other services, wholesale trade, and mining/logging, which reduced payrolls by 7,000, 7,000, 6,600, 5,000 and 2,000.

Unemployment Rate Falls

A tick down in the unemployment rate was accompanied by decelerating wage pressures and a smaller labor force, which was influenced by President’s Trump tight migration policy. The joblessness percentage sunk to 4.1% which was better than the expectation for an increase to 4.3%, but wages only rose 0.2% month over month (m/m) and 3.7% year over year (y/y), arriving lighter than forecasts calling for 0.3% and 3.9% as well as the prior month’s 0.4% and 3.8%. Meanwhile, 130,000 people quit working and/or looking for employment all together and that unfortunate reality sent the participation rate to its lowest level since December of 2022, marking a 30-month low. In another adverse statistic, the average hours in a work week declined to 34.2 from 34.3, matching February’s result. 

Claims Depict Labor Market Stability

The long trend of employers holding on to workers but also refraining from expanding their staff continued during the past two weeks, at least according to today’s unemployment claim data.  

Initial claims of 233,000 for the week ended June 28 sank from 237,000 in the preceding reporting timespan and were less than the 240,000 economist consensus estimate, illustrating that employers are still holding on to workers. Conversely, filings for continuing assistance, an indicator of the difficulty idle individuals have when seeking work, totaled 1.964 million for the seven-day period finishing on June 21, which was unchanged from the preceding measurement timespan. The consensus forecast called for 1.960 million.

Four-week averages moved from 245,250 and 1.938 million to 241,500 and 1.954 million. The latter metric was the highest since the November 20, 2021, print of 2.004 million.

Services Sector is Stronger than Expected

The ISM Services PMI beat expectations, as consumer demand strengthened last month. The 50.8 headline score was higher than the 50.5 median estimate and May’s 49.9 level. Firms reported strong revenue and robust activity although employment was reduced and price pressures remained lofty, but cost forces did decelerate from a faster pace of expansion. Moreover, survey respondents reflected concerns about tariffs and uncertain economic prospects.

Potential Drivers of Equity Gains Are Front and Center

Despite this morning’s June jobs report throwing cold water on July’s rate cut expectations, equity investors are thrilled to learn that the cycle is still solid. Enthusiasm is also heavily motivated by the fact that this growing economy will receive supply-side stimulus as the congressional members in the lower chamber prepare their votes to potentially pass a critical aspect of President Trump’s legislative agenda in a few hours. The combination of a strong labor market, subdued price pressures and incoming tax relief signals smooth sailing for stocks. Finally, it appears that momentum on the cross-border commerce front is strengthening ahead of next week’s deadline and will likely add further fuel to the fire of this rally.

International Roundup

China’s Services Sector Weakens

China’s non-goods producing sector continued to expand in June despite activity slowing to a nine-month low, according to the Caixin China Services Purchasing Managers’ Index. The gauge sank from 51.1 in May to 50.6, staying above the contraction-expansion border of 50 but missing the economist consensus forecast of 51. June was the thirteenth consecutive month of expansion. New business growth slowed, however, even with an increase in marketing and new product launches. Export demand fell for a second month and at the fastest pace since the last month of 2022. Businesses also made marginal staffing cuts that contributed to a build-up of uncompleted work orders. Raw materials and energy contributed to higher input costs, but businesses chose to absorb those expenses rather than increase their prices. On a positive note, sentiment improved for the second straight month but remained below the long-term historical average.

Australia’s Trade Surplus Declines

Australia’s trade surplus in May fell from $4.85 billion to $2.23 billion and significantly missed the economist consensus expectation of $5 billion. Imports climbed 3.8% m/m while exports sank 2.7%. In April, imports climbed 1.6% while exports dropped 1.76%. Among imports, non-industrial transport equipment jumped 7.9%. Food and beverage trailed with a 5.1% ascent, while household electrical items declined.

Export volumes were hindered by the following categories that declined by the stated amounts:

• Wool and sheepskins, 16.5%
• Meat and meat preparations, 15.7%
• Goods procured in ports by carriers, 11.6%
• Other mineral fuels, 11.5%

While Services Sector Expands

The country’s PMI for the non-goods producing sector climbed from 50.6 in May to 51.8 in June due to the fastest pace of new business since May 2024. Economists anticipated a result of 51.3. In June, sentiment hit a three-year high, a result of expectations for lower borrowing costs, better demand and potential benefits from increased business development efforts. Firms added staff to handle ongoing workloads, causing a decline in outstanding businesses. The activity expansion occurred despite foreign orders dropping at the fastest rate in almost three-and-a-half years. Firms also reported that input costs increased but at the slowest rate of the year.

Japanese Equities Enjoy Inflows

Foreign investors snatched up $4.53 billion in Japanese equities during the week ended June 27. It was the thirteenth consecutive week of inflows. Foreign investors also pumped $1.26 billion into Japanese bonds.

Canada’s Trade Deficit Declines as Exports Increase

Even with US import tariffs dinging Canada’s shipments of items to its closest neighbor, the country’s overall exports in May were up 1.1% m/m, a considerable reversal from April when shipments plunged 11%, according to Statistics Canada. It was the first increase in four months and was driven by metal and non-metallic mineral products shipments expanding 15.1% in May. Within this category, unwrought gold, silver and platinum metals and their alloys were up 30.1%. Most of the rise was attributable to higher physical shipments of gold to the United Kingdom. Additionally, Canada’s imports dipped 1.5%. The combination resulted in the nation’s trade deficit declining from $7.6 billion to $5.9 billion, below the economist consensus estimate of $6 billion.