Softer economic numbers allowed yields to completely reverse the recent thrusts higher, so that’s unwound and helps view of the coming friendlier Fed. depositphotos This half-day had more than 1 or 2 mega-caps rallying, and that’s fine. What we do care about are smaller-caps responding favorably to both lower rates (which helps business in general), but also valuation shifting aspects beyond simply the AI play. The AI play is pretty well done in hardware, not software.  An hour after the Close, we got FOMC Minutes released. The Fed Minutes did not reflect any need to ease policy yet, and most warned about ‘raising not cutting’ if inflation persists. Note this was before numbers such as today’s. At the same time they worried about ‘real estate fragility’ and consumer credit.  The participants worried about higher Unemployment and as I noted, this is a time when labor market cooling may predate the absorption of job applicants, as Friday will be the number. John Williams (NY Fed President) today said he doesn’t see current policies as restrictive. I know what he means (normal rate ranges preceding recent years), but that ignores a bifurcated (twin) economy situation that prevails. At least the economy is not impacting margins . . so far.  Market X-ray: The market really awaits Friday’s Jobs Report, but yields have responded to the subtle economic weakening, which ISM data supported as Services and other sectors declined a bit. Friday will be a full session.Among the greatest risks for now would be an Israeli-Lebanese war (already underway in lower-key ways, but with much of very Northern Israel forced to evacuate for now)…. especially ‘if’ Iran (which threatens it) intervenes.Short-term hurricane risk to refineries is ‘possibly’ sidestepped as/if the storm goes to Mexico and maybe just Brownsville Texas. If it turns North and really slams Texas refineries (less likely) then Oil might dip while gasoline rises. In the overall sense, Oil remains strong, many more storms forthcoming and of course the geopolitical aspects.  Bottom-line: We remain optimistic about July seasonality, especially for many of the ‘under-loved’ smaller-caps that have viable business prospects.The ‘election risk’ of two controversial (or just worn-out) candidates remains a bit of a wild card, but generally not too determinant for equities thus far.  More By This Author:Market Briefing For Tuesday July 2 Market Briefing For Monday July 1Market Briefing For Thursday June 27