Wentz Weekly: One Big Beautiful Bill Signed Into Law

Wentz Weekly Insights
One Big Beautiful Bill Signed Into Law, Trade Deal Annonced, Solid Economic Data Drive Stocks to New Highs

There was no shortage of market moving events last week even though it was a much shorter trading week with markets closed early Thursday and closed all day Friday. It was another week of fresh record closing highs for the S&P and Nasdaq, which rose 1.72% and 1.62% respectively, while the Dow’s 2% increase put it less than 1% from its own highs. There was no clear winner for the week, with broad participation for US stocks. The upside was driven by trade optimism with a key deal announced, the passage of the One Big Beautiful Bill, and solid labor market data.

While we expect volatility to continue in the coming weeks due to trade/tariff concerns, a key deal was made last week between the US and Vietnam. The Trump Administration said it struck a deal with Vietnam where products made entirely in the country will see a 10% tariff while goods with a higher number of foreign content will see a higher tariff of 20% or more. The deal also includes a 40% tariff on goods that are transshipped through Vietnam, where goods are made elsewhere and sent to the US through Vietnam to avoid additional tariffs, which was a key sticking point for the US. Vietnam also agreed to give the US more access to its markets and pledges to buy more US goods and eliminate certain tariffs.

We expect more deals like this to be announced over the next several weeks, but this week includes a key deadlines on July 9. This is when the pause to the April 2 reciprocal tariffs is ended and the high tariffs go back in effect. While this could be delayed, as suggested by Treasury Secretary Bessent over the weekend, it was confirmed by Trump he does not intend to delay the tariffs (early Monday reports indicate the delay may be until August 1).

Trump did say however he is planning to send letters to trading partners over the coming days to tell them what the new tariff rate will be. As was the case in April, we expect this to be a negotiating factor that will bring trading partners to the table, but create more uncertainty and volatility over the short-medium-term.

Markets finally have certainty on the tax front after Congress passed and Trump signed the One Big Beautiful Bill Act into law just in time for the July 4 deadline. After tense moments and a dramatic overnight session, the House passed the bill Thursday after a record setting floor speech of over 8 hours by House Minority leader Hakeem Jeffries. The passage removes another overhang for stocks and gives companies a better ability to provide financial estimates for investors.

US companies will benefit from certain capital expenditure and research and development features in the bill while taxpayers will benefit as the 2017 Tax Cuts and Jobs Act tax cuts will be made permanent, as well as several campaign promises like tax relief on tips, overtime pay, and social security. Other key features include phasing out/removing clean energy initiatives, more funding for defense and border security, and a number of changes in Medicare and Medicaid like eligibility requirements. Overall the bill is a big positive for stocks but created a little more worry for bond markets as it will raise the government debt level.

The other market driving event was the week’s labor market data. The first report was Tuesday’s job openings and labor turnover survey that showed an uptick in the number of job openings, but it remains within the recent range of 7-8 million which is the “normal” range historically. The second was ADP’s payroll data that was more disappointing. It said saw a loss of 33,000 payrolls in June versus the expected gain of around 100,000.

But the most anticipated report for the week was Thursday’s Department of Labor employment situation report where the expectation was for an additional 110,000 payrolls in June. The data showed an additional 147,000 payrolls with households reporting a higher degree of employment. This resulted in a lower unemployment rate of 4.1% in June, down from 4.2% in May.

This helps the Fed and Jerome Powell justify their stance of being patient and waiting for more economic data before making any policy moves. The data continues to suggest a strong economy and persistently high inflation, reinforcing the case that there is no urgency for the Fed to cut rates.

Markets now turn to a slower week with very little (no notable) economic data or earnings report, and no Fed speak. Any market moving events will likely come from the trade/tariff side of things. Looking forward the next big market catalyst is second quarter earnings season which kicks off next week.

Week in Review:

Stocks were higher across the board last week with broad participation as the S&P 500 equally weighted outperformed the cap weighted index 2.37% to 1.72%. The four major US indices finished as follows: Russell 2000 +3.52%, Dow +2.30%, S&P 500 +1.72%, and Nasdaq +1.62%. Volatility (as measured by the VIX) was much more calm with the volatility index relatively unchanged. Treasuries continue to bounce back and forth with last week seeing higher yields, likely due to a combination of stronger data and the passage of the One Big Beautiful Bill. The 2-year Treasury yield rose 14 basis points to 3.89% while the 10-year yield rose 6 bps to 4.35%. The dollar index fell 0.23% and remains at the lowest level in over three years. Gold rose 1.80%, Bitcoin increased 0.88%, and oil was up 1.50%.

Recent Economic Data

• Employment Report: In June total payrolls increased 147,000, above the estimated range and the consensus expectation of about 110,000, and the most job additions in over a year. Revisions, which have consistently been negative in this report for a few years now, were actually positive with April revised up 11,000 payrolls to 158,000 while May was revised up 5,000 to 144,000. There was a decline in payrolls in manufacturing, trade, and professional services, while the biggest increases were in health care, construction, and a very big increase in government (made up over half June’s new payrolls). Private payrolls (non-govt) increased 74,000, lower than expected. On the other hand, the household data showed the labor force fell 130,000 (but up 2.4 million over the past year), the number of people employed increased 93,000 (up 2.2 million the past year), and the number unemployed fell 222,000 (but up 166,000 over the past year). This resulted in the unemployment rate falling 0.1% to 4.1% and the U-6 underemployment rate falling 0.1% to 7.7%. Wages grew 0.2% in the month, slowing from recent months, and is up 3.7% over the past year, coming down from 3.9% from May.

• Jobs Openings and Labor Turnover Survey: The number of job openings the last day of May was 7.769 million, an increase of 374k from the prior month and the highest since November, although still within its recent range of 7.1 million to 7.8 million. The number of hires was down 112,000, but relatively unchanged over the past year and a little below its historical average of 5.2 million. The number of separations fell 71,000 to 5.242 million (relatively unchanged from a year ago) with the quits rising 78,000 but again, relatively unchanged over the past year.

• ADP Payrolls: ADP reported private employers shed 33,000 jobs in June, versus the expectations of an increase of about 100,000 payrolls. ADP Chief Economist said, “Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month.” Payroll declines were seen most in professional services and education/health services, and increases were seen in a broad number of sectors including leisure and hospitality, trade, and manufacturing.

• Jobless Claims: The number of jobless claims the week ended June 28 was 233,000, down 4k from the prior week with the four-week average down 4k to 241,500. The number of continuing claims was unchanged at 1.964 million while the four-week average increased 15k to 1.954 million.

• PMI Manufacturing Index: The PMI manufacturing index was 52.9 for June for the strongest reading in three years, above the expectations of 52.0 and a little above the level from May of 52.0. The report noted output grew after declining the past three months which spurred the fastest hiring since late 2022. It also noted producers ramped up inventory to hedge against tariff risks. However, input costs rose sharply to the highest in over three years which manufacturers reported they passed on to customers.

• ISM Manufacturing Index: The ISM manufacturing index was 49.0 for June, a slight improvement from 48.5 in May, but still indicating declining manufacturing conditions in the US. The report noted a slight improvement in production however a further drop in new orders with employment declining for the fifth straight month. Inflation remains high with the prices index soaring to 69.7 for the highest in three years. Half of the 18 major industries reported growth in the month, six reported contraction in activity, and three reported no change.

• Construction Spending: Construction spending has been weak lately, cooling after several years of strong growth. In May construction spending declined another 0.3% which was against the 0.2% increase expected. Spending on residential fell 0.5% while spending on nonresidential fell 0.2%. Compared to a year ago construction spending has declined 3.5%, driven by a 6.5% decline in residential and 1.1% decline in nonresidential.
• Trade Deficit: After shrinking in April from the tariff effects, the trade deficit widened again in May. The trade deficit was $71.5 billion in May (the US imported $71.5 billion more than it exported in May), widening from $60.3 billion in April but not nearly as bad as the $100+ billion deficit from January – March. The reason for the wider deficit was due to exports declining 4.0%, or $11.6 billion. Meanwhile imports declined 0.1%, or $0.3 billion. Year-to-date the deficit has increased $175 billion, up 50.4% from the same period last year. The total volume of trade, an indication on global activity, fell 1.9% in the month, however is still up 4.2% from a year ago.

Company News

• TikTok: President Trump said a buyer has been identified for the purchase of TikTok and consists of what he calls very wealthy people and said their identities will be revealed in about two weeks.

• Circle Internet: Circle, a fintech company focused primarily on issuing stablecoins, last week announced it submitted an application to the Office of the Comptroller of the Currency to gain its banking charter, allowing it to establish a national trust bank, the First National Digital Currency Bank. This will allow it to operate as a federally regulated trust institution and allow the newly established bank to regulate and oversee the management of USDC, a US dollar backed stablecoin.

• Lululemon: Lululemon filed a lawsuit last week against Costco for allegedly selling cheaper priced knock-offs of its athleisure line through its own private label brand and unlawfully traded on Lululemon’s reputation, goodwill, and sweat equity by selling unlicensed apparel.

• Netflix: The Wall Street Journal reported Netflix has engaged in talks with Spotify about creating a partnership on music shows, live concert series, celebrity interviews, and shorter documentaries. It also said Netflix is planning for another music competition.

• Olo: Online ordering (as well as payment, delivery, and marketing) platform Olo announced it has agreed to be acquired by private equity group Thoma Bravo in an all-cash deal valued at $2 billion, or $10.15 per share, about a 14% premium to where the stock traded prior to the news, and a 64% premium to where shares traded prior to the initial report of a potential takeover back in April.

Other News:

• Fed’s Annual Bank Stress Test: The financial sector was the second best performing sector Monday after all 22 of the banks part of the Federal Reserve’s annual bank stress tests passed the tests that puts each under a hypothetical severe downturn scenario. The Fed reiterated the big banks remain well capitalized and resilient. This will allow the banks to increase dividends and share buybacks.

• Fed Chairman Powell: Jerome Powell spoke last week at a European Central bank forum and said when the Fed saw the size of tariffs it went on hold as all inflation forecasts went up materially and thought the prudent thing to do was to wait and learn more on the data and how the expectation was higher inflation readings over summer. When asked about a July rate cut (the Fed’s next meeting) he said no meeting is off the table and policy decisions will depend on the data. He added a majority of Fed members believe it will be appropriate to cut at some point this year.

• One Big Beautiful Bill Act: The reconciliation bill, referred to as the One Big Beautiful Bill Act, passed the Senate last Tuesday after Democrats stalled it by voting on a series of amendments. It was then moved to the House which faced initial challenges but ultimately passed by a vote of 218-214 after a record setting floor speech by House Minority leader Hakeem Jeffries. The bill went to the President’s desk just before the July 4 deadline Trump put in place when he got into office. Major parts of the bill include making the 2017 Tax Cuts and Jobs Act tax cuts permanent, tax relief on tips, overtime, car loan interest, social security, and key business provisions, creation of Trump Accounts, reforms/phases out clean energy incentives/credits, increases funding for border security and defense, and a number of healthcare provisions including for Medicare and Medicaid.

• Trade:
  • Canada announced two weeks ago it would implement a digital service tax on US companies, which Trump criticized and immediately terminated trade talks. Shortly after, PM Mark Carney said Canada would rescind the tax in effort to continue trade talks.
  • Trump said he does not intend to extend the July 9 end to the reciprocal tariff pause and will be sending out letters in the next few days telling what the tariffs will be. In addition, Treasury Secretary Bessent said recalcitrant countries may see tariffs go back to Liberation Day tariff rates (from April 2^nd prior to the 90 day delay).
  • There were reports the US and European Union were closer to a trade agreement after Bloomberg reported the EU may be willing to accept a 10% universal tariff, but with some exceptions for key sectors.
  • Trump also said he is “not sure if we’re going to make a deal, I doubt it, with Japan.” He called Japan unfair on trade and said he would send a letter to Japan saying no thanks and threatened a tariff of 35% on all Japanese imports. Trump/the US is targeting more purchases of American cars and rice.
  • Bloomberg reported the US has made a trade deal with Vietnam where the US will impose tariffs on Vietnamese exports based on the percentage of foreign components they contain. Goods with the highest number of foreign content will see tariffs of 20% or more while products made entirely in Vietnam will see a 10% tariff. Vietnam will also see a 40% tariff on transshipping (good manufactured elsewhere and sent to US through Vietnam), which was a big sticking point for the US as China reroutes many of its exports through Vietnam to avoid American tariffs. Prior to this Vietnam’s tariffs averaged 9.4%. Vietnam in return agrees to give the US total access to its markets and buy more US goods and eliminate some tariffs.
  • It was reported by Bloomberg that Trump rescinded the restrictions on exports of chip design software to China as part of its trade deal where China in return will speed up its exports of rare earth minerals to the US.

• OPEC Meeting: The Organization of the Petroleum Exporting Countries (OPEC) agreed in a meeting on Saturday to increase their total oil production by another 548,000 barrels per day (bbl/day) in another move to unwind voluntary supply cuts that took place after the Covid pandemic. It previously increased production in May and June. The increase was more than the 411,000 bbl/day increase that was widely expected.

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