The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.22%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.27%.  June E-mini S&P futures (ESM25) are down -0.02%, and June E-mini Nasdaq futures (NQM25) are up +0.27%. 

Stock indexes on Wednesday settled mixed, with the S&P 500 posting a 3-1/4 month high and the Nasdaq 100 posting a 3-1/2 month high. Lower bond yields Wednesday supported stocks, with the 10-year T-note yield falling -9 bp to a 3-1/2 week low of 4.36%.  Also, strength in chip stocks on Wednesday lifted the broader market. 

Stock gains were muted on Wednesday by signs of weakness in the US economy following the May ADP employment change, which posted its smallest increase in more than two years, and the May ISM services index, which contracted for the first time in eleven months.  The Fed's Beige Book was also negative for stocks, as it hinted at signs of stagflation, with economic activity slowing and prices rising.

US-China trade tensions undercut stocks after President Trump said Wednesday that Chinese President Xi Jinping is "very tough and extremely hard to make a deal with." Mr. Trump's comments dampened optimism for a US-China trade deal in the near future.

US MBA mortgage applications fell -3.9% in the week ended May 30, with the purchase mortgage sub-index down -4.4% and the refinancing mortgage sub-index down -3.5%.  The average 30-year fixed rate mortgage fell -6 bp to 6.92% from 6.98% in the prior week. 

The US May ADP employment change rose +37,000, weaker than expectations of +114,000 and the smallest increase in more than two years.

The US May ISM services index unexpectedly fell -1.7 to 49.9, weaker than expectations of an increase to 52.0 and the first time the index fell below 50 and contracted in 11 months.  The May ISM prices paid sub-index rose +3.6 to a 2-1/2 year high of 68.7, stronger than expectations of no change at 65.1.

The Fed Beige Book said that economic activity has declined slightly since the previous report, with little change in employment and prices increasing at a "moderate" pace.  Also, "All districts reported elevated levels of economic and policy uncertainty, which have led to hesitancy and a cautious approach to business and household decisions."

The markets are discounting the chances at 4% for a -25 bp rate cut at the next FOMC meeting on June 17-18.

The markets this week will focus on any fresh trade or tariff news. On Thursday, weekly initial unemployment claims are expected to fall by -5,000 to 235,000.  On Friday, May nonfarm payrolls are expected to climb +125,000, and the May unemployment rate is expected to remain unchanged at 4.2%. Finally, May average hourly earnings are expected to rise +0.3% m/m and +3.7% y/y. 

Overseas stock markets on Wednesday settled higher.  The Euro Stoxx 50 closed up +0.55%.  China's Shanghai Composite climbed to a 1-1/2 week high and closed up +0.42%.  Japan's Nikkei Stock 225 closed up +0.80%.

Interest Rates

September 10-year T-notes (ZNU25) Wednesday closed up +21 ticks.  The 10-year T-note yield fell -9.1 bp to 4.363%.  Sep T-notes on Wednesday climbed to a 3-1/2 week high, and the 10-year T-note yield fell to a 3-1/2 week low of 4.347%.  T-notes rallied Wednesday on signs of weakness in the US labor market after the May ADP employment change posted its smallest increase in more than two years.  T-notes added to their gains after the May ISM services index unexpectedly contacted for the first time in eleven months.  Also, a decline in inflation expectations was supportive for T-notes after the US 10-year breakeven inflation rate fell to a 3-week low Wednesday of 2.304%. 

Gains in T-notes were limited by signs of price pressures after the May ISM prices paid sub-index rose more than expected to a 2-1/2 year high. Also, the Fed’s Beige Book stated that prices increased at a "moderate" pace in most of the Fed's twelve districts since the last report.

European government bond yields on Wednesday were mixed.  The 10-year German bund yield rose +0.2 bp to 2.528%. The 10-year UK gilt yield fell -3.1 bp to 4.606%.

The Eurozone May S&P composite PMI was revised upward by +0.7 to 50.2 from the previously reported 49.5.

The UK May S&P services PMI was revised upward by +0.7 to 50.9 from the previously reported 50.2.

Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at Thursday's policy meeting.

US Stock Movers

ON Semiconductor Corp (ON) closed up more than +5% to lead gainers in the S&P 500 after it said it is starting to see signs of a broad-based recovery in demand.  Other chip makers rallied on the news, with Marvell Technology (MRVL) closing up more than +6% to lead gainers in the Nasdaq 100 and NXP Semiconductors NV (NXPI) closing up more than +5%.  Also, GlobalFoundries (GFS) closed up more than +2%, and Broadcom (AVGO), Advanced Micro Devices (AMD), Lam Research (LRCX), ARM Holdings Plc (ARM), and Texas Instruments (TXN) up more than +1%.

Homebuilders closed higher after the 10-year T-note yield fell to a 3-1/2 week low, a supportive factor for housing demand.  DR Horton (DHI) closed up more than +4%.  Also, Lennar (LEN) and PulteGroup (PHM) closed up more than +3%, and Toll Brothers (TOL) closed up more than +2%. 

Guidewire Software (GWRE) closed up more than +15% after boosting its revenue guidance for the full year to $1.18 billion to $1.19 billion from a previous forecast of $1.16 billion to $1.17 billion, above the consensus of $1.17 billion. 

Thor Industries (THO) closed up more than +3% after reporting Q3 net sales of $2.89 billion, well above the consensus of $2.56 billion, and forecasting full-year consolidated net sales of $9.0 billion-$9.5 billion, the midpoint better than the consensus of $9.23 billion. 

Lumentum Holdings (LITE) closed up more than +2% after boosting its Q4 adjusted EPS forecast to 78 cents-85 cents from a prior forecast of 70 cents-80 cents, stronger than the consensus of 74 cents. 

XP Inc (XP) closed up more than +1% after Goldman Sachs upgraded the stock to buy from neutral with a price target of $23. 

Dollar Tree (DLTR) closed down more than -8% to lead losers in the S&P 500 after forecasting 2026 net sales of $18.5 billion-$19.1 billion, the midpoint below the consensus of $18.93 billion. 

CrowdStrike Holdings (CRWD) closed down more than -5% to lead losers in the Nasdaq 100 after reporting Q1 subscription revenue of $1.05 billion, below the consensus of $1.06 billion, and cutting its 2026 adjusted operating income forecast to $878.7 million-$909.7 million from a previous forecast of $944.2 million-$985.1 million, weaker than the consensus of $975.7 million.

Tesla (TSLA) closed down more than -3% after reporting its May vehicle shipments from China fell -15% y/y to 61,662 units, the eighth straight monthly decline.

Energy producers and energy service providers fell Wednesday after Bloomberg News reported Saudi Arabia wants OPEC+ to accelerate oil production hikes in the coming months to regain lost market share.  As a result, Valero Energy (VLO), Marathon Petroleum (MPC), and Phillips 66 (PSX) closed down more than -3%.  Also, Schlumberger (SLB), ConocoPhillips (COP), Diamondback Energy (FANG), and Haliburton (HAL) closed down more than -2%.  In addition, Chevron (CVX) closed down more than -1% to lead losers in the Dow Jones Industrials.

Flowserve (FLS) closed down more than -6% after agreeing to combine an all-stock merger with Chart Industries, where Chart shareholders will receive 3.165 shares of Flowserve common stock for each share of Chart common stock owned.

Aptiv Plc (APTV) closed down more than -1% after Guggenheim Securities downgraded the stock to neutral from buy.

Earnings Reports (6/5/2025)

Broadcom Inc (AVGO), Brown-Forman Corp (BF/B), Ciena Corp (CIEN), Docusign Inc (DOCU), Lululemon Athletica Inc (LULU), Toro Co/The (TTC), Vail Resorts Inc (MTN).