Fixed Income Update
The second quarter came to a close during this holiday-shortened week, and bond market activity was largely subdued. There were, however, a few notable developments that could have meaningful implications for markets going forward.
First, on Monday, the Supreme Court fully overturned Humphrey’s Executor, a 91-year-old precedent that established the independence of certain federal agencies. For nearly a century, Congress structured these agencies with governance frameworks designed either to balance political party representation among their leadership, or to ensure control by a single party. Following the Court’s decision, these agencies will likely function more as executive branch agencies unless Congress enacts new legislation restoring the previous framework.
Perhaps more importantly, the Supreme Court reaffirmed that the Federal Reserve is unique among federal agencies due to its monetary policy responsibilities and remains protected from presidential removal of its officials at will. In a 5–4 ruling, the Court held that the President must demonstrate stronger evidence of misconduct before removing Governor Lisa Cook. The decision also appears to be a positive development for Chairman Kevin Warsh, as it reinforces the Federal Reserve’s independence from presidential influence.
Investors were also given an opportunity to hear from the new Fed Chair this week. In his first public remarks since the Fed’s June 17 meeting, Warsh struck a relatively optimistic tone, suggesting that inflationary risks have “come down” in recent weeks. While reiterating that he would not provide specific forward guidance on interest rate policy, his more favorable assessment of inflation implies support for maintaining the current policy stance rather than pursuing additional rate hikes.
Other Fed officials offered differing views this week. New York Fed President John Williams said he expects pressures from tariffs and energy prices to ease and believes monetary policy is “well positioned” to restore price stability. In contrast, Cleveland Fed President Beth Hammack suggested that additional rate hikes may be necessary to contain inflation, noting that “we’ve got inflation that’s too high, and it’s been too high for the past five years.” Minneapolis Fed President Neel Kashkari added that he was among the officials who projected a rate increase this year but emphasized that his forecast was written “in pencil” and would be adjusted as economic data evolve.
Finally, Thursday’s nonfarm payrolls report showed that the economy added 57,000 jobs in June, below expectations for a 113,000 gain. The softer pace of job growth, along with three-month revisions showing 74,000 fewer jobs than previously reported, may help ease concerns about a reaccelerating labor market - an outcome policymakers have identified as a potential catalyst for future rate hikes.
As of July 2, 2026
|
Index |
Current |
Last Week |
Wk Chg |
Last Year |
Yr Chg |
|
Tax-exempt MMF |
2.58% |
2.52% |
.06% |
2.41% |
.17% |
|
Taxable MMF |
3.67% |
3.66% |
.01% |
4.31% |
-.64% |
|
|
|
|
|
|
|
|
2-Year Treasury |
4.12% |
4.12% |
-.01% |
3.79% |
.33% |
|
5-Year Treasury |
4.20% |
4.17% |
.04% |
3.87% |
.34% |
|
10-Year Treasury |
4.47% |
4.39% |
.07% |
4.28% |
.19% |
|
30-Year Treasury |
4.98% |
4.86% |
.12% |
4.80% |
.17% |
|
5-Year Exp. Inflation |
2.28% |
2.24% |
.04% |
2.36% |
-.08% |
|
|
|
|
|
|
|
|
2-Year Municipal** |
2.47% |
2.46% |
.02% |
2.56% |
-.08% |
|
5-Year Municipal** |
2.69% |
2.70% |
-.01% |
2.68% |
.01% |
|
10-Year Municipal** |
3.06% |
3.10% |
-.04% |
3.29% |
-.23% |
|
30-Year Municipal** |
4.37% |
4.38% |
-.01% |
4.88% |
-.51% |
|
|
|
|
|
|
|
|
Fed Funds |
3.75% |
3.75% |
.00% |
4.50% |
-.75% |
|
Prime Rate |
6.75% |
6.75% |
.00% |
7.50% |
-.75% |
|
Dollar*** |
$100.61 |
$101.43 |
-$0.82 |
$96.78 |
$3.83 |
|
CRB |
$353.86 |
$356.05 |
-$2.19 |
$300.71 |
$53.15 |
|
Gold |
$4,147.90 |
$4,030.50 |
$117.40 |
$3,359.70 |
$788.20 |
|
Crude Oil |
$67.38 |
$71.92 |
-$4.54 |
$67.45 |
-$0.07 |
|
Unleaded Gasoline**** |
$2.89 |
$2.90 |
-$0.01 |
$2.02 |
$0.87 |
* Composite A
** General Obligation AA+
*** Int'l value of the U.S. dollar (Avg. exchange rate between the dollar and 6 major world currencies).
**** Futures price per gallon
Stock Market Update
U.S. equities delivered solid gains in this holiday-shortened week. Investors balanced quarter-end momentum trading, beginning of quarter market rotation, easing inflation worries, and softer-than-expected labor market data. Through Wednesday’s close, the Nasdaq Composite was higher by ~2.9%, while the S&P 500 Index gained ~1.8%, extending the market’s strong year-to-date advance even as leadership began to shift; the Nasdaq and S&P 500 were both lower Thursday morning.
Early in the week, investors appeared to be adding to second-quarter winners, particularly AI hardware names, as quarter-end trading wrapped Tuesday afternoon. AI hardware momentum faded the first day of the third quarter however, as investors rotated away from AI hardware to other pockets of the market, perhaps in search of value opportunities. Several names within the Magnificent Seven cohort saw renewed buying interest and software names were also a bright spot this week with market breadth improving as the week progressed. For investors, that shift could be notable. The U.S. equities rally remains intact, but at least for now, performance leadership appears less concentrated than it was during the second quarter’s (Q2) sharp advance in AI hardware names.
Several developments contributed to the mid-week pullback in AI hardware names. Profit-taking likely played a role after significant Q2 gains, with two company-specific reports also likely weighing on sentiment. Meta Platforms was reported to be exploring an expansion into cloud services by selling excess compute capacity. This raised questions about a potential oversupply. Separately, Apple was reported to be in talks with Chinese memory suppliers, and seeking U.S. government sourcing approval, which pressured memory names given potential competitive and pricing implications. After rising more than 4% in both Monday’s and Tuesday’s sessions, the iShares Semiconductor ETF (SOXX) fell more than 6% on Wednesday and was lower by more than 6% again as of Thursday morning. The Invesco S&P 500 Equal Weight ETF (RSP) has outperformed the market cap-weighted S&P 500 by nearly 400 bps since the end of May, which suggests investors are increasingly looking to broaden exposure beyond narrow AI hardware leadership.
Geopolitics also remained in focus, though market reaction was contained. Despite flare-ups over the weekend, the U.S.–Iran ceasefire continued to hold, and additional negotiations remain on the docket. With the conflict still trending toward a potential peace resolution and maritime traffic through the Strait of Hormuz improving, oil prices retreated for a fourth consecutive week. WTI crude traded below $68/barrel Thursday morning, helping to ease energy-linked inflation concerns.
The week’s most important macro data point came Thursday morning in June’s Nonfarm Payrolls report. The U.S. economy added 57k jobs, well below the 110k consensus estimate, while job gains for April and May were revised lower. Following the release, the market-implied probability that the Federal Reserve keeps the effective fed funds rate unchanged at its July meeting rose above 82%, up from ~71% a day earlier, according to the CME FedWatch Tool. Expectations for rates to remain unchanged through December also increased to 23.5% from 16.7%. The labor market backdrop continues to appear solid, but the softer print, combined with easing energy-linked inflation pressures, may reduce the need for additional rate hikes. For equity investors, that is supportive, provided inflation continues to moderate and economic growth remains solid.
Looking ahead, next week is expected to be relatively quiet, but investor attention will soon turn to Q2 earnings season. S&P 500 Q2 earnings are expected to grow by more than 20% for a second consecutive quarter, with AI capex continuing to be a core driver of profit growth. Earnings have been a key catalyst behind US equity performance in 2026, helping equities wade through geopolitical uncertainty, inflation worries, and a change in Fed rate cut expectations. For now, improving breadth, resilient earnings expectations, and easing energy prices provide a constructive backdrop for the U.S. market. Happy 250th, U.S.A.!
As of July 1, 2026
|
Index |
Current Week |
Month of Jul. |
YTD |
|
Dow Jones Industrial Avg. |
0.84% |
-0.03% |
9.73% |
|
S&P 500 |
1.77% |
-0.21% |
9.97% |
|
Nasdaq |
2.94% |
-0.66% |
12.39% |
|
MSCI EAFE |
0.58% |
-0.47% |
9.32% |
|
Russell Mid Cap |
0.51% |
-0.16% |
15.11% |
|
Russell 2000 |
0.13% |
-0.39% |
22.10% |
