Plenty of Data to Start 2nd Half of 2025

Markets are seeing early 2H25 gains erode after record 1H25 highs, as investors weigh significant policy uncertainties. The 'Big Beautiful Bill' to make corporate tax cuts permanent is expected to pass, adding $3 trillion to national debt, while trade deal progress remains limited ahead of a July 9 tariff deadline. A softening labor market, with upcoming payrolls barely covering retirements, could pressure the Fed to cut rates from their current 4.25-4.50% level, potentially unlocking long-suffering sectors like housing. Today's JOLTS data will offer further insights into the job market's trajectory.

Analysis

Markets are entering the second half of 2025 on a cautious footing, pulling back from the record highs that concluded 1H25. This sentiment is driven by a confluence of significant macroeconomic and policy uncertainties. On the fiscal front, a bill to make the 2017 corporate tax cuts permanent is expected to pass the Senate, but its passage carries the projection of adding over $3 trillion to the national debt over the next decade and still requires re-passage in the House. In parallel, progress on international trade remains limited, with only an outline of a deal with the UK and ongoing talks with the EU and Japan, all under the pressure of a looming July 9 tariff deadline. The labor market is showing signs of softening, with upcoming private-sector payrolls from ADP and nonfarm payrolls estimated at a tepid 100K-110K, a level that barely covers retiring workers and leaves minimal room for downside surprises. This weakness, however, could be a catalyst for the Federal Reserve to resume monetary easing. After holding the federal funds rate at 4.25-4.50% through 1H25, a deteriorating jobs market could prompt a series of rate cuts, potentially benefiting long-suppressed, rate-sensitive industries such as housing. Upcoming JOLTS data is expected to confirm this cooling trend with a forecast drop in job openings to 7.3 million, and a noted divergence in the Professional & Business Services sector could be a leading indicator of weakening business spending in high-wage jobs.

Key Decisions for Investors

• Given the market's retreat from record highs amid significant policy and economic uncertainties, investors should consider protecting recent gains and maintaining a cautious to neutral portfolio stance.
• Closely monitor the legislative progress of the corporate tax bill and any developments regarding trade negotiations ahead of the July 9 tariff deadline, as these events represent significant near-term catalysts for market volatility.
• Pay close attention to upcoming labor market data, as any figures below the expected 100K-110K range could solidify expectations for Fed rate cuts, potentially creating opportunities in rate-sensitive sectors like housing and utilities.
• Scrutinize employment figures within the Professional & Business Services sector, as the noted divergence between job openings and actual payrolls may provide early signals of a slowdown in corporate spending and white-collar employment.