Good morning,
 
The first half of the year is in the books, and the market has a very different complexion than it did when Q1 wrapped up. There were double digit gains across most major US indices in Q2, but keep in mind that markets were at YTD lows right at the end of the first quarter. Traders were mispositioned for a de-escalation in Iran and a phenomenal earnings season added to the scramble. To start the quarter pretty much everything rallied but as we moved into May tech took over the leadership position as yields started to move higher despite oil prices topping out. In the middle of the month the tech trade also began to evolve with investors following the money - punishing the hyperscaler AI Capex spending which was devouring their cash flow and moving into the beneficiaries - semiconductor and memory stocks. That continued throughout the month of June as you can see with the nearly 20% outperformance of the ICE Semi Index relative to the NYSE FANG+ during the month. In June the breadth improved with small and midcaps outperforming as healthcare, industrials and financials led the way.
 

 
Yesterday in a quiet session with thoughts of barbeques and fireworks entering the collective consciousness the quarter ended on a positive note. There was a risk on tone with defensive/yield-oriented sectors, which had been outperforming recently, pulling back. It was fitting that semis which have outperformed across pretty much every time frame this year led to the upside. Thematic favs were also moving higher with robotics, space and rare earths moving higher though crypto continued to be under pressure with Bitcoin and Ethereum holding just above the YTD lows.
 
US futures have been modestly lower overnight. About a half an hour ago Bloomberg reported that Meta (+>5%), which has been one of the most aggressive companies during this investment cycle, is forming a new cloud business to sell compute capacity. Semis and memory stocks were modestly lower and have since taken an additional leg to the downside since the report (SMH -2.5%, DRAM -8%). On the flip side of that software has been moving modestly higher (IGV +1.5%). Microsoft is expected to announce another round of layoffs next week. According to Anthropic the Commerce Department has lifted export controls on Claude Fable 5 and Mythos 5 models. S&P, Dow and Russell 2k futures are down ~0.3%.
 

 
This morning’s ADP Employment Report came in slightly below estimates up 98k. Services accounted for pretty much all the job creation with about half of that coming from education and health services. There were gains across small (+53k), mid (+29k) and large companies (+25k). Wages for job stayers were unchanged from last month at 4.4% while job changers ticked up slightly to 6.6%. Challenger job cuts fell to 45.8 from 97k last month the lowest since December 2025 with layoffs concentrated in technology. Yields have moved up slightly overnight extending yesterday’s move ahead of the “Policy Panel” at the ECB’s Sintra Conference which will feature BoE’s Bailey, ECB’s Lagarde, BoC’s Macklem and Fed Chair Warsh. Yields in Europe have been moving higher particularly at the long end after reports that the ECB is considering doubling reserve requirements to limit the central bank’s interest rate burden. The USD is moving higher against most crosses.
 

• US 2yr +1bps to 4.19%, 5yr +2bps to 4.25%, 10yr +2bps to 4.50%, 30yr +3bps to 4.99%
• USD index: +$0.31 to $101.27

 
Markets in Asia were mixed overnight. In Japan the Yen continued to hit new lows though the Nikkei ended with modest gains. Tech, financials and manufacturing led to the upside offsetting losses in healthcare, transportation and consumer facing companies. South Korea’s Kospi fell 2% as Samsung and SK Hynix pulled back. The Hang Seng was closed for holiday. In China the Shanghai Composite was up about 0.5%. The Rating Dog Manufacturing PMI was about in line with estimates and last month.  European indices are mostly lower but off the worst levels. Financials, consumer and energy are leading to the downside while tech outperforms.
 

 
Yesterday oil prices tried to bounce but failed at the 200d ma and are retesting the recent lows again down ~1%. Metals were under pressure again overnight with gold breaking back below 4k, but the complex has rallied off the worst levels despite the USD moving higher. Yesterday the USDA released its quarterly planting and stock reports with tighter stocks offsetting increased planting sending the complex higher and that is extending to the upside this morning. Crypto retested the YTD lows overnight tried to bounce but is fading again.
 

 
There have been a handful of earnings. Nike is modestly lower as the company continues to highlight a difficult operating environment. Constellation Brands and General Mills are both higher after their results. On a somewhat related note, Kroger is buying Giant Eagle for $1.65B.  
 
Earnings:
After-Market:  HUBG, NKE, PRGS, STZ
Pre-Market: FDS, GIS, MSM, UNF         
After-Market: SBX
 
Economic Data:
US:

• Mortgage Apps: 0% w/w prior 1%; 30yr Rate: 6.57% prior 6.59%
• Challenger Job Cuts: 45.8k prior 97k
• ADP Employment Change: vs. 113k cons., prior 122k
• 9:45 S&P Global Manufacturing PMI (final)
• 10:00 ISM Manufacturing
• 10:00 Construction Spending
• 10:30 Oil Inventories

Global:

• China Rating Dog Manufacturing PMI: 51.7 vs. 51.6 cons., prior 51.8
• South Korea Imports/Exports: 30.1%/70.9% prior 20.7%/53.4%
• South Korea PMI: 52.1 prior 54.8
• Japan Manufacturing PMI (final): 54.8 prior 54.9
• Japan Consumer Confidence: 33.8 vs. 34 cons., prior 33.6
• EU CPI/Core: 2.8%/2.4% vs. 3%/2.6% cons., prior 3.2%/2.6%
• EU Manufacturing PMI (final): 51.4 prior 51.3