Good morning Traders, Investors, & Quants — and welcome to a high-stakes week.

Markets are flexing — but not frothing.

After tagging record highs, the S&P backed off as rotation took hold. Mega cap tech cooled, small caps surged, and defensives caught a bid. Beneath the churn, manufacturing is quietly strengthening, and the economic engine still has fuel.

But geopolitics are adding friction. Trump’s Megabill cleared the Senate — barely — but faces a House food fight. Tariff talks with Japan hit turbulence. And the July 9 deadline is closing in fast.

This is one of those weeks where the scoreboard says calm… but the tape is twitching.

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If Monday was a melt-up, Tuesday was a measured pivot.

Tech leaders finally cooled as the market broadened out. Small caps, transports, homebuilders, and REITs all caught a bid. Defensive sectors joined the party, while the Mag7 gave up ground. That’s healthy rotation, not panic.

Economic data added fuel: S&P Manufacturing PMI surged to 52.9, the highest since May 2022, while ISM’s read climbed to 49.0. Not gangbusters, but enough to quiet recession talk for now. New orders remain weak, but production and supplier delivery metrics are rebounding.

Treasuries sold off slightly as traders braced for Thursday’s jobs data. The 10-year yield rose to 4.25%, while the dollar’s intraday reversal underscored how jittery currency markets are getting about fiscal stability.

Technicians are watching the 50-day moving average on the S&P creep toward a golden cross with the 200-day — a bullish long-term trend signal we haven’t seen in over two years. It’s not a short-term catalyst, but it’s reinforcing the “buy the dip” psychology that’s defined this market since April.

Breadth is improving, volatility remains low, and capital keeps flowing. But complacency is creeping in too — and July’s data calendar won’t be kind.

Trade Turbulence and AI Tensions

Trump’s trade chessboard is in motion again.

He threw cold water on expectations for a Japan deal, openly floating tariffs as high as 35% if talks fail. India looks more promising — but the White House is sending mixed signals on whether the July 9 tariff pause will hold.

Canada’s digital tax spat may be resolved, but trade volatility is now moving to other fronts. And with Treasury, Defense, and Commerce all weighing in on tech policy, the battle over AI and semiconductors is expanding beyond economics.

A new WSJ deep dive highlights how China is pulling ahead in AI hardware while the U.S. remains dominant in software. That hardware gap is drawing fresh scrutiny in D.C., with potential restrictions on exports and new investment screening proposals gaining traction.

Meanwhile, Ukraine support is wobbling. The Pentagon delayed weapons transfers due to budgetary constraints, a move that’s raising eyebrows across NATO. While unity at next week’s summit remains the goal, U.S. political fatigue is unmistakable.

Markets aren’t panicking — but they’re watching.

Megabill Chaos Hits the House

Trump’s legislative behemoth — the Megabill — passed the Senate by a hair, thanks to VP Vance’s tiebreaker. But the real brawl is now underway in the House.

Conservatives want deeper cuts. Moderates want solar credits back. And nobody agrees on how to fund the tax breaks without blowing out the deficit.

Solar stocks rallied after the Senate deal preserved some clean energy incentives. Homebuilders surged on pro-density provisions. But healthcare names slumped after Medicare rate cuts were confirmed. And student debt relief — now pegged to complex tax offsets — is already drawing fire from fiscal hawks.

Also making waves: Paramount settled with Trump for $16M over the infamous 60 Minutes interview lawsuit. It’s political theater with financial punchlines.

Immigration reform remains stalled, though reports of a sector-specific visa pilot program continue to swirl behind the scenes.

With the House vote set for Wednesday, this could be the most consequential legislative week of the summer.

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Markets dipped modestly Tuesday after a strong run, with investors rotating out of tech and into cyclicals and defensives. The S&P 500 pulled back, the Nasdaq underperformed, and the Russell 2000 led with a solid gain.

NYSE breadth was strong — advancers beat decliners 3-to-1 — and sector rotation dominated. Materials, Health Care, and Staples posted solid gains. Bond yields rose, with the 10-year finishing at 4.25%. Oil inched higher on China strength and OPEC+ anticipation. Gold gained 1.27%, and the dollar clawed back early losses to end higher.

Rotation is real, resilience is strong — but risks are rising.

The Megabill could shift the fiscal narrative. Tariffs could reprice global growth. And the July 4 lull might hide some explosive setups.

Watch jobs data. Watch yields. Watch for the unexpected.

Stay nimble. Stay sharp.