Dow Leads as Rotation Broadens Beyond Semiconductors

Wall Street closed the holiday-shortened week with a cautiously positive tone, as softer labor-market data helped ease fears of an imminent Federal Reserve rate hike.

U.S. markets are closed Friday ahead of the Independence Day observance, making Thursday’s session the final trading day of the week. Markets were mostly higher for the first four trading days of the second half, with the Dow Jones Industrial Average ($DJI) leading the major indexes at a record close of 52,900.07, a 1.97% gain. The S&P 500 (SPX) rose 1.75% and the Nasdaq-100 (NDX) was up 0.72% for the four-day week. However, the small-cap focused Russell 2000 (RUT) fell -0.46% on the week despite hitting an all-time high of 3,046.59. Crude oil futures (/CL) continued a four-week slide, down more than 2% to $68.43 per barrel.

This followed a choppy stretch shaped by sector rotation, shifting AI leadership, and renewed sensitivity to interest-rate expectations.

The weekly gains came after a soft June employment report, which pushed the dollar lower and reduced expectations that the Fed would need to hike rates soon. Treasury yields were mixed, with the 2-year yield falling to about 4.14%, while the 10-year held near 4.48%.

June Jobs Disappoint: 720,000 Left the Labor Force

The biggest economic headline was the June jobs report. Nonfarm payrolls increased by only 57,000, far below expectations for 110,000. May payrolls were revised down to 129,000 from the previously reported 172,000, reinforcing the view that hiring momentum has cooled. The unemployment rate unexpectedly slipped to 4.2% from 4.3%, but that improvement came as roughly 720,000 people left the labor force, making the report less clearly bullish. Wage growth held at 3.5% year over year, steady enough to avoid reigniting wage-inflation fears.

Other labor data also pointed to a cooler jobs market. ADP reported that private employers added 98,000 jobs in June, down from 122,000 in May, while Challenger data showed planned layoffs fell sharply from the prior month. JOLTS job openings remained firm, but hiring softened, suggesting employers are not rushing to fire workers, but are also becoming more cautious about adding headcount.

Sector rotation was the real story beneath the surface

Consumer discretionary was one of the top-performing groups earlier in the week, helped by gains in Tesla (TSLA), Amazon (AMZN), and Home Depot (HD), although Tesla’s delivery-related decline weighed on the sector late Thursday. Communication services also gained ground after Meta Platforms (META) surged on reports that the company is building a cloud business to sell excess AI computing capacity. That potential pivot makes Meta look less like a pure social media and advertising platform and more like a future neo-cloud competitor, giving investors another way to value its massive AI infrastructure spending. 

Apple (AAPL) was another standout. Apple stock gained on reports of price hikes tied to rising memory and storage costs, along with speculation that Apple is seeking approval to purchase memory chips from China. If Apple can diversify memory supply, reduce forward component expenses, and preserve margins, it could boost profitability. But the same news weighed on memory and storage makers such as Micron (MU), Western Digital (WDC), SanDisk (SNDK), and Seagate (STX), which had benefited from the perception of tight supply and strong pricing power.

That shift dampened the prior run in memory stocks and highlighted a new split inside technology. With the PHLX Semiconductor Index (SOX) under pressure, software found new life as investors reassessed how quickly AI will displace traditional software companies. The divergence between semiconductor hardware and software narrowed this week, not because AI demand disappeared, but because investors began to question whether every dollar of AI capex would flow cleanly to chip suppliers without margin pressure, competition, or customer pushback.

Financials were another major source of leadership. Goldman Sachs (GS) helped lead the charge and took price leadership over Caterpillar (CAT) in the Dow, giving the financial sector a strong weekly boost. JPMorgan (JPM) also remained a key beneficiary of firm loan demand, high nominal rates, and a labor market that is not completely breaking. Healthcare was another standout, fitting the week’s broader rotation toward defensive quality and cash-flow stability.

Major global headlines also shaped the tape. Fed Chair Kevin Warsh reiterated the central bank’s 2% inflation goal, but said war-related price risks had eased. U.S.-Iran talks over the Strait of Hormuz ended without clear progress, yet oil fell to a four-month low, near $68.50 per barrel, as supply concerns eased.

Overall, the week gave investors a modest relief rally, but not a full all-clear. The labor market is cooling, rate-hike odds have eased, and sector leadership is broadening beyond the original AI winners. But the market is also becoming more selective. Apple and Meta gained on strategic pivots, financials and healthcare attracted rotation flows, and memory stocks lost momentum as investors questioned whether pricing power has peaked. The rally remains intact, but leadership is changing quickly.

Economic Events (Monday 7/6, ET)

• 09:45 AM: S&P Global PMI (June) 
• 10:00 AM: ISM PMI (June) 
• 11:30 AM: 3- and 6-Month Bill Auction

Earnings Calendar (Monday 7/6) n/a

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