Broad Market Leads on First Day of Q3 as Rotation into Value and Small Caps Takes Hold

The third quarter kicked off with a clear change in tone: small-cap, mid-cap, and value stocks took the spotlight, while many mega-cap and growth stocks lagged behind. It was a day defined by rotation, as the “other 493” names in the S&P 500 stepped up and carried the broader market, while tech heavyweights took a breather.

Market action showed signs of quarterly rebalancing, but the shift was also supported by a string of upbeat macro developments. The May JOLTS report revealed a notable rise in job openings, suggesting underlying strength in the labor market. Meanwhile, the ISM Manufacturing Index for June showed a slower pace of contraction, hinting that industrial activity may be stabilizing. Investors also cheered news from Washington: the Senate passed its version of the “One Big, Beautiful Bill” in a narrow 51–50 vote, with Vice President Vance casting the tiebreaker.

The bill now moves to the House, where debate is scheduled to begin Wednesday morning. A vote could follow soon after, potentially putting the legislation on the president’s desk by July 4. Key provisions include permanent tax cuts, Medicaid work requirements, SALT cap adjustments, and significant changes to clean energy subsidies.

Bond markets responded with caution. Treasury yields edged higher amid speculation that the combination of fiscal expansion and improving economic data could delay a rate cut. Fed Chair Powell, speaking at the ECB Forum on Central Banking, noted that the Fed might have already cut rates if not for the inflationary impact of newly announced tariffs. Adding to the uncertainty, Bloomberg reported that the administration does not intend to extend the current tariff pause beyond July 9. The 2-year yield rose 5 basis points to 3.77%, while the 10-year yield climbed 2 basis points to 4.25%, flattening the curve.

This cautious bond backdrop didn’t stop stocks from climbing—at least beyond the mega-cap space. The equal-weighted S&P 500 rose 1.2%, easily outpacing the market-cap-weighted S&P 500, which slipped 0.1% under pressure from declines in Tesla (-5.3%), NVIDIA (-3.0%), Meta Platforms (-2.6%), Microsoft (-1.1%), and Alphabet (-0.3%).

Tesla was hit especially hard after Elon Musk publicly denounced the “One Big, Beautiful Bill,” while the president suggested that subsidies for Musk-affiliated companies might face review.

Despite Tesla’s slide, the consumer discretionary sector managed to edge higher (+0.2%), thanks in part to a modest gain in Amazon (+0.5%) and strong performance from casino stocks, which rallied on better-than-expected Macau revenue figures for June.

The day’s leadership came from materials (+2.3%), health care (+1.4%), energy (+0.8%), and consumer staples (+0.8%). The weakest groups were communication services (-1.2%) and information technology (-1.1%), although the latter was cushioned somewhat by a 1.3% gain in Apple.

Market breadth confirmed the broad participation beneath the surface: advancers outpaced decliners 3-to-1 on the NYSE and led by a smaller but still positive margin at the Nasdaq.

Here is the translated and rewritten version for a financial blog post:

Our U.S. portfolio, FTinvest 11, started the third quarter on a confident note, surging higher right from the opening bell. Momentum carried the index past the 780 mark early in the session, and at its peak, gains exceeded 3.5%, briefly pushing the index above the 790 level for the first time in weeks.

Although some late-session profit-taking trimmed the advance, FTinvest 11 still closed firmly higher at 786.22, posting a 2.78% gain for the day. The strong performance mirrors broader market rotation into value and mid-cap names and positions the portfolio well as the new quarter gets underway.