Record Highs: Jobs Fuel the Rally

Fresh news and strategies for traders. SPY Trader episode #1288. Hello and welcome to Spy Trader, your goto podcast for navigating the ins and outs of the stock market. I'm your host, Penny Wise, and it's 6 am on Saturday, July 5th, 2025, Pacific time. We're here to give you the freshest take on what's driving the market as we head into the weekend. What a week it's been in the U.S. stock market! Major indices have been absolutely soaring, hitting new record highs, and there's a good dose of optimism floating around, primarily fueled by some positive economic data and a glimmer of hope on the trade front. However, as always, there are some underlying concerns and specific company stories that add a bit of spice to the mix. Let's dive into a quick summary of what happened. The major U.S. stock indexes posted solid gains during this shortened trading week, which wrapped up early on July 3rd for the Independence Day holiday. The S&P 500 was a real standout, rising 1.72% for the week and closing at a new record high of 6,227.42. It even continued its climb on July 4th, reaching 6,279 points. For May 2025, it clocked a fantastic 6.15% monthly return. The techheavy Nasdaq Composite also hit new record highs, gaining 1.62% for the week and closing at 20,393.13 on July 3rd. Not to be left out, the Dow Jones Industrial Average rose 2.3% for the week, getting very close to its alltime high set back in December. Looking at the yeartodate performance for 2025, the S&P 500 and Nasdaq are up nearly 7%, while the Dow has climbed 5.4%. The second quarter of 2025 was particularly strong, with the S&P 500 surging nearly 11% and the Nasdaq soaring 18%. Now, let's talk sectors. Basic Materials led the charge, up 3.59%, closely followed by Financial Services, which rose 2.64%. On July 3rd, Technology, Energy, and Materials also saw nice advances. On the flip side, Utilities and Communication Services lagged a bit, and the Health Care sector even saw a decline on July 3rd. Moving on to the big news items and macroeconomic conditions, the highly anticipated June jobs report, released on July 3rd, showed strongerthanexpected job growth. Total nonfarm payroll employment increased by 147,000, surpassing predictions. The unemployment rate unexpectedly dipped to 4.1% in June from 4.2% in May, mainly because more unemployed folks found jobs. Job gains were mostly in state government and health care, while federal government employment continued to decline. While the headlines looked great, private sector hiring did slow down a bit. Average hourly earnings increased by a modest 0.2% in June, a significant slowdown from earlier in the year. When it comes to inflation, the annual rate for the U.S. was 2.4% for the 12 months ending May. We're all waiting for the next Consumer Price Index, or CPI, update for June, which is due on July 15th. The Federal Reserve has expressed concern that President Trump's tariffs could be bubbling up prices this summer. At its June meeting, the Fed kept its target federal funds rate steady at 4.25% to 4.50%. They did revise their 2025 Gross Domestic Product forecast downward and increased their yearend PCE inflation projection, again citing the anticipated impact of tariffs. But here's the interesting part: the median Fed official still expects two quarterpoint rate cuts before the end of 2025. Federal Reserve Chair Jerome Powell emphasized that growth remains solid, but uncertainty is high, and the Fed will remain patient. On July 1st, Powell couldn't confirm a July rate cut, saying the Fed would be carefully watching the labor market. Trade policy and tariffs also played a big role. Optimism around potential trade deals, specifically with Vietnam and an anticipated deal with India, gave market sentiment a boost. However, President Trump's looming July 9th tariff deadline is a major focus for investors, as these tariffs are expected to weigh on growth and push up prices. Plus, the ongoing discussions in Congress about President Trump's 'One Big Beautiful Bill', which includes provisions impacting renewable energy tax credits and the elimination of the 7,500 dollar EV credit, also caused some market ripples. Now, let's talk about some specific companies that made headlines. Datadog, ticker DDOG, saw its shares surge 15% on July 3rd after S&P Global announced its inclusion in the S&P 500 index on July 9th. Tesla, ticker TSLA, had a volatile week, falling more than 5% on July 1st due to a public dispute between Elon Musk and former President Trump over the budget bill and EV credits. However, Tesla also reported beating its secondquarter delivery estimates. Renewable energy stocks like First Solar and Enphase Energy saw significant gains on July 3rd, likely influenced by those discussions surrounding renewable energy tax credits and new taxes on imported renewables equipment within that pending 'Big Beautiful Bill'. Adobe, ticker ADBE, shares dropped 4.5% on July 3rd following rival Figma's IPO filing and some analyst downgrades due to increasing AI competition. Nike, ticker NKE, the stock rose 4.1% on July 3rd, benefiting from the U.S.Vietnam trade deal. Both Ford and GM saw their shares jump around 5% on July 1st after reporting strong secondquarter sales. CrowdStrike, ticker CRWD, shares gained nearly 4% on July 3rd after an analyst price target increase. And the technology giants Microsoft, ticker MSFT, and AMD, ticker AMD, continued to benefit from the AI rally, with Microsoft shares up 8% in June and AMD rising 28% last month after unveiling new GPUs. So, what's behind all this market action? The U.S. stock market's strong performance over the past few days can largely be attributed to the positive surprise in the June jobs report. Those robust job creation figures and a declining unemployment rate instilled confidence in the economy's resilience, really encouraging investors to jump into riskier assets like stocks. This was further bolstered by that optimism surrounding trade agreements, as reduced geopolitical and trade uncertainty typically supports global economic activity and corporate earnings. Even though the Federal Reserve held interest rates steady, the expectation of two rate cuts later in 2025 provided a somewhat dovish undertone, signaling that monetary policy might become more accommodating, which is generally quite favorable for stock valuations. However, the Fed's revised inflation forecasts, largely due to anticipated tariff impacts, highlight a persistent concern that could temper market enthusiasm if inflation proves stickier than expected. The sector performance clearly reflected these themes. Basic Materials and Financial Services likely benefited from the overall positive economic sentiment and the stable interest rate environment. Technology continued its strong run, largely due to the ongoing excitement around Artificial Intelligence advancements, although some individual tech stocks did face headwinds from competition or companyspecific controversies. The underperformance of Utilities and Communication Services suggests a rotation away from those more defensive sectors, as investors chased growth opportunities. Companyspecific news, like Datadog's S&P 500 inclusion and strong automotive sales, provided microlevel catalysts, while the highprofile dispute involving Tesla underscored how individual company events and political headlines can introduce significant volatility even for market leaders. So, with all that in mind, what are our recommendations for you, the savvy Spy Trader? First, monitor inflation data closely. While the jobs report was strong, the Fed's concern about tariffdriven inflation remains. That upcoming June CPI release on July 15th will be absolutely crucial. If inflation proves persistent, it could delay Fed rate cuts, potentially creating headwinds for the market. Second, evaluate your sector exposure. Given the recent outperformance of Basic Materials and Financial Services, and the continued strength in Technology, consider maintaining exposure to these sectors. However, given the broadening of market gains beyond just a few megacap tech stocks, look for opportunities in other growthoriented or cyclical sectors that might benefit from a stable economic environment. Third, stay diversified. Despite the positive momentum, uncertainties persist, including geopolitical risks and potential impacts of new tariffs. A diversified portfolio across various sectors and asset classes can really help mitigate risks. Fourth, assess companyspecific developments. Individual company news, particularly earnings reports and policy impacts, like that 'Big Beautiful Bill' on EV credits, can significantly influence stock performance. Stay informed on companies within your portfolio. And finally, rebalance periodically. With the market hitting new highs, it's a good time to review your portfolio. Rebalancing can help ensure your asset allocation remains aligned with your longterm financial goals and risk tolerance, potentially allowing you to take some profits from overextended positions. That's all for this edition of Spy Trader. Thanks for tuning in, and remember to stay wise with your investments!