Start of Q3 follows form with Q2

The new month (July) and new quarter (Q3) followed form with how the majority of the old month (June) and old quarter (Q2) played out. The Dow, Nasdaq, and S&P 500 finished higher, supported by gains in their mega-cap leaders, but the broader market languished.

For instance, the market-cap weighted S&P 500 increased 0.3% while the equal-weighted S&P 500 declined 0.8%.

The indices aren’t going to have the benefit of mega-cap leadership at the open — at least not leadership to the upside. That cohort is weaker in pre-market trading, which is weighing on the equity futures market.

Currently, the S&P 500 futures are down 23 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 106 points and are trading 0.6% below fair value, and the Dow Jones Industrial Average futures are down 107 points and are trading 0.3% below fair value.

We’re not getting a sense that there is going to be an active rotation out of the mega-cap stocks and into the stragglers, largely because there isn’t much corporate news of material note to move the market. Tesla (TSLA) will be reporting its Q2 deliveries data today, and Eli Lilly (LLY) is down 2.0%, while Novo Nordisk (NVO) is down 3.8%, on a call in a USA Today opinion piece by President Biden and Senator Sanders to lower the cost of their weight-loss drugs.

Also, there is an air of reserve ahead of Fed Chair Powell’s participation in a discussion at the ECB’s Forum on Central Banking that will begin at 9:30 a.m. ET.

There is also some reserve based on the behavior of interest rates of late. Treasury yields are lower this morning, but they have been backing up in spite of last week’s otherwise pleasing PCE Price Index data for May.

Some safe-haven unwinding following round one of France’s snap election has been partly to blame, but various reports are also suggesting that deficit concerns have been behind some of the selling as well. Rising oil prices ($84.22, +0.84, +1.0%) shouldn’t be overlooked either, as they are the outlier that stirs concerns about inflation remaining sticky.

The 2-yr note yield is down four basis points to 4.73% (but slightly higher from where it was just before the PCE print) and the 10-yr note yield is down five basis points to 4.43% (but up 15 basis points from where it was before the PCE print). 

Today’s only economic report is the May JOLTS – Job Openings Report (prior 8.059 million) at 10:00 a.m. ET. It will be looked at closely, though, as market participants are keen on the message of employment data and what it could mean for Fed policy and the direction of market rates.

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Originally Posted July 2, 2024 – Start of Q3 follows form with Q2