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Q3 Begins on Higher Note
01-Jul-19 16:15 ET
Dow +117.47 at 26717.43, Nasdaq +84.92 at 8091.16, S&P +22.57 at 2964.33

https://www.briefing.com/investor/markets/stock-market-update/2019/7/1/q3-begins-on-higher-note.htm

[BRIEFING.COM] The stock market began the week on a higher note, but the major averages were only able to keep a portion of their gains through the close. The S&P 500 gained 0.8% after being up 1.0% at the start while the tech-heavy Nasdaq rose 1.1% after starting the session with a 1.7% gain.

The strong open was owed to a positive view of Saturday's meeting between President Trump and China's President Xi Jinping. While the meeting did not yield concrete steps toward reaching a trade deal, it also did not lead to an escalation of the dispute. Instead, President Trump agreed to relax restrictions on sales of components to Huawei and agreed to not impose additional tariffs on imports from China at this time.

Stocks surged out of the gate with chipmakers leading the opening rally, which was not a surprise given the group's sensitivity to trade-related matters. The PHLX Semiconductor Index was up nearly 5.0% at the start of the session but trimmed its gain to 2.7% by the close. Huawei supplier Inphi (IPHI 53.67, +3.57, +7.1%) was the top performer within the group, rallying 7.1%. Semiconductor giant, Intel (INTC 48.05, +0.18, +0.4%), jumped above its 200-day moving average (48.85) at the start, but narrowed its gain to just 0.4% as the session wore on.

The technology sector (+1.5%) remained atop the leaderboard into the close, but like the rest of the market, the top-weighted group settled closer to its session low than its high.

Equities backed off their starting levels during intraday action, as optimism about the weekend outcome of the Trump-Xi meeting was partially offset by the realization that the economic situation in major export centers remains weak. To that point, China's Manufacturing PMI (actual 49.4) remained in contractionary territory in the final June reading, Japan's Manufacturing PMI decreased to 49.3 from 49.5, and the Manufacturing PMI for the eurozone slipped to 47.6 from 47.8. Adding insult to injury, South Korea reported that its exports decreased 13.5% yr/yr in June.

To be fair, the U.S. ISM Manufacturing Index also decreased in June (to 51.7 from 52.1), but it remained in expansionary territory, serving as a reminder that the U.S. economy is still a pocket of relative strength. On that note, the U.S. economic expansion entered its 121st consecutive month today, representing the longest expansionary streak on record.

Relative strength in U.S. data gave a boost to the U.S. Dollar Index, which climbed 0.7% to 96.82, reclaiming its 200-day moving average in the process.

Treasuries ended in the red with shorter tenors leading the retreat. The 10-yr yield rose three basis points to 2.03% while the 2-yr yield rose five basis points to 1.79%.

Today's economic data was limited to the June ISM Manufacturing Index and Construction Spending for May:

The ISM Manufacturing Index for June checked in at 51.7% (Briefing.com consensus 51.5%), down from 52.1% in May. The dividing line between expansion and contraction is 50.0%.
The key takeaway from the report is that it shows weakening manufacturing activity. June was the third straight month in which there was a decelerating pace of growth. This should capture the Fed's attention as it contemplates a rate-cut decision at its July 30-31 FOMC meeting.
Total construction spending declined 0.8% m/m in May (Briefing.com consensus 0.0%) following an upwardly revised 0.4% increase (from 0.0%) in April. Overall, construction spending was down 2.3% yr/yr.
The key takeaway from the report is that private construction spending remains noticeably weak, held back by a downturn in residential spending.

Market participants will not receive any noteworthy data tomorrow.

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