Investment Commentary – July 7, 2025

Executive Summary

Major U.S. stock indexes finished the holiday-shortened week higher. Smaller-cap indexes performed best, with the S&P MidCap 400 and Russell 2000 indexes climbing 2.85% and 3.52%, respectively, followed by the Dow Jones Industrial Average, which advanced 2.30%. The S&P 500 Index and Nasdaq Composite both closed at all-time highs for the second week in a row. U.S. markets closed early Thursday and were closed Friday in observance of the Independence Day holiday.

Much of the focus during the week centered around the progress of the Trump administration’s reconciliation bill, which was narrowly passed by the Senate on Tuesday and by the House of Representatives on Thursday afternoon. Trade-related headlines also continued to flow during the week, with President Donald Trump announcing a trade deal with Vietnam on Wednesday and making comments around negotiations with several other trade partners ahead of the upcoming July 9 tariff deadline, when the 90-day pause on reciprocal tariffs is expected to end.

Job growth remains resilient in June

On the economic data front, the Labor Department reported that the U.S. economy added 147,000 jobs in June, ahead of economists’ estimates and up from May’s upwardly revised reading of 144,000. The unemployment rate ticked lower to 4.1%, while average hourly earnings grew 0.2% month over month.

The report came as a welcome surprise following Wednesday’s weaker-than-expected data from payroll processing firm ADP, which showed private payrolls contracted by 33,000 in June against estimates for a gain of around 115,000. This was the first negative reading since March 2023 and was driven by “a hesitancy to hire and a reluctance to replace departing workers,” according to Nela Richardson, chief economist at ADP.

Elsewhere, the Labor Department reported on Tuesday that job openings rose to 7.8 million in May, up from April’s reading of 7.4 million and the highest level since November. Accommodation and food services had the largest increase in openings, followed by finance and insurance. Initial jobless claims for the week ended June 28 also came in better than expected at 233,000, down 4,000 from the prior week’s revised level.

Manufacturing activity contracts in June; services rebounds to expansion

Activity in the U.S. manufacturing sector contracted for the fourth consecutive month in June, according to a report from the Institute for Supply Management (ISM). The ISM’s manufacturing purchasing managers’ index (PMI) was 49%, up from May’s reading of 48.5% and just shy of estimates for 49.1% (readings below 50% indicate contraction).

Meanwhile, the services sector returned to growth after contracting for the first time in 11 months in May, registering a June PMI reading of 50.8%. The rebound was largely attributed to improvements in business activity and new orders. The Prices Index eased 1.2 percentage points from May but remained solidly in expansion territory—indicating rising prices—with a reading of 67.5%, the second-highest reading since November 2022 and the seventh consecutive month above 60%.

High yield bonds advance amid equity market strength

U.S. Treasuries were little changed through Wednesday as yields fluctuated in response to the week’s mixed economic data. On Thursday morning, yields across most maturities increased in response to the better-than-expected jobs report.

Investment-grade corporate bonds posted positive returns amid a light week of new issuance, and all of the week’s new issues were oversubscribed. High yield bonds also generated positive returns, where high yield market sentiment was generally firm as equities traded higher amid generally favorable macroeconomic conditions.