[New York Stock Market] Mixed Close on First Day of Second Half... Focus on Senate-Passed Tax Cut Bill and Tariff Policy

Trump's Tax Cut Bill Passes Senate; House Vote Set for July 2
Market Reaction Limited Despite Fiscal Deficit Concerns
Trump Reaffirms Negative Stance on Tariff Suspension Extension
Warns "Japan Tariff May Rise from 24% to 30-35%"
Powell Says "Rates Would Have Been Cut Further Without Tariffs"

The three major indices on the New York Stock Exchange closed mixed on the first trading day of the second half of the year, July 1 (local time). After the S&P 500 and Nasdaq indices hit all-time highs for two consecutive days, the market, feeling the effects of a rally fatigue, saw investors taking profits, resulting in a pause in the upward momentum. On the same day, the U.S. Senate passed a tax cut bill that is expected to cause a large fiscal deficit, but the market reaction in U.S. Treasury bonds and the dollar remained limited.

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On this day, the blue-chip Dow Jones Industrial Average closed at 44,494.94, up 400.17 points (0.91%) from the previous trading day. The S&P 500, which focuses on large-cap stocks, fell by 6.94 points (0.11%) to 6,198.01, while the tech-heavy Nasdaq dropped by 166.85 points (0.82%) to 20,202.89.

Investors sold off large-cap tech stocks and shifted their buying toward small-cap stocks. Tesla plunged 5.34%. On the same day, President Donald Trump warned Elon Musk, CEO of Tesla, who had mentioned the possibility of founding a new party and criticized the tax cut plan, that "he could lose a lot." This was the second consecutive day of warnings, following Musk's comments the previous day about cutting subsidies for companies he operates. Other tech stocks also generally declined. Nvidia fell 2.97%, and Microsoft (MS) dropped 1.08%. In contrast, healthcare stocks showed notable strength, with Amgen rising 4.05%, Merck up 3.41%, and Johnson & Johnson gaining 2.08%.

The main issue that drew market attention was the Senate's passage of the large-scale tax cut bill. The Senate approved what President Trump called the "one big beautiful bill," a key part of his policy agenda, by a vote of 51 in favor and 50 against. The House is scheduled to vote on the Senate version, which includes some amendments, on July 2. However, because the bill increases the fiscal deficit and cuts Medicaid (health insurance for low-income individuals) funding, its passage in the House is not guaranteed. In particular, concerns are mounting over a rapid increase in national debt due to the ballooning fiscal deficit. The Congressional Budget Office (CBO) projects that, based on the Senate bill, the fiscal deficit will increase by $3.3 trillion by 2034.

Nevertheless, despite concerns over the fiscal deficit, the market reaction remained limited. The yield on the 10-year U.S. Treasury note, the global benchmark for bond yields, rose by 4 basis points (1bp=0.01 percentage point) from the previous day to 4.25%, while the yield on the 2-year Treasury, which is sensitive to monetary policy, increased by 6 basis points to 3.78%. Yields had already been rising in the morning and only slightly extended their gains after the tax cut bill passed. Earlier in the day, the U.S. Department of Labor reported that the number of job openings in May 2025 reached 7,769,000, the highest in six months since November of the previous year, which dampened expectations for a rate cut. The U.S. dollar remained slightly weaker. The dollar index, which measures the value of the dollar against six major currencies, was down 0.13% from the previous day at 96.36.

Investors also paid close attention to comments from the Trump administration regarding tariffs, as the expiration of the U.S. mutual tariff suspension approaches on July 8. President Trump reiterated to reporters that he has no intention of extending the mutual tariff suspension, which expires at 12:01 a.m. on July 9. He was particularly skeptical about the possibility of a trade agreement with Japan, stating that the mutual tariff rate on Japan could be raised from the current 24% to 30-35%. This came just one day after he warned that "Japan does not import our rice despite a large rice shortage," and said he would send them a letter listing the tariff rates. In contrast, President Trump said that a trade agreement with India "is possible," raising expectations for additional trade deals.

Remarks by Jerome Powell, Chair of the U.S. Federal Reserve, also drew market attention. At a European Central Bank (ECB) forum, Powell stated, "If it weren't for the tariffs, we would have cut rates further," and added, "We took a pause after confirming the scale of the tariffs. All U.S. inflation forecasts due to tariffs have effectively increased."

With the final U.S. tariff rates, trade negotiations, interest rate trajectory, and the progress of the tax cut bill expected to shape the direction of the stock market going forward, some on Wall Street are forecasting increased volatility.

Zachary Hill, Head of Portfolio Management at Horizon Investments, analyzed, "It doesn't seem like the market is expecting too much, but there could still be volatility," and added, "Because investors have increased their (buy) positions in recent weeks, this could be a potential vulnerability."