What Happened Last Week
- Semis-Induced Volatility: Equity markets rose on the week, but semiconductor-related news flow led to choppy sessions and rotation.
- Mid-East Tensions Rose: The U.S. intensified strikes against Iran and declared the ceasefire over as Iran continues to harass merchants in the Gulf.
- New Issuance: Despite volatility in tech, last week saw some capital raising, indicating favorable conditions and confidence among corporates.
What We’re Watching This Week
- Earnings Week One: The largest U.S. banks are set to kick off earnings against a backdrop of very high investor expectations.
- Inflation: Tuesday’s June inflation report is the marquee macro event of the week.
- Economic Data: Several other economic data releases and a congressional appearance for Chair Warsh may also shed some light on the state of the economy and the path for the Fed.
Investment Management Team’s Views
Equity markets pushed higher last week, but the path was far less smooth beneath the surface. Technology and AI-related stocks experienced another bout of volatility as investors recalibrated expectations following mixed reactions to several high-profile corporate announcements. Strong capital-raising activity, including a large bond issuance by Amazon and an equity offering by SK Hynix, reinforced the view that financing conditions remain favorable and corporate confidence is high. At the same time, the sharp reaction to Samsung’s earnings preannouncement highlighted how elevated expectations have become after an exceptional rally. With Q2 earnings season beginning this week, we expect strong profit growth and continued increases in AI-related capital spending to provide fundamental support. Summer liquidity and positioning could contribute to elevated day-to-day volatility.
Markets largely looked through renewed geopolitical tensions and instead shifted their focus back toward inflation and interest rates. President Trump’s announcement that the ceasefire with Iran had ended pushed oil prices and Treasury yields higher, but equity markets proved remarkably resilient. Reactions to headlines out of the Middle East have become smaller in recent days. This reinforces our view that investors continue to see the AI investment cycle and corporate earnings as more important drivers of equity returns than near-term geopolitical flare-ups. Even so, higher energy prices could influence the inflation outlook, making the market increasingly sensitive to incoming economic data. We remain attuned to the risk of an escalatory spiral in the Middle East, but also recognize that Iran’s capabilities to respond have likely been severely degraded.
The week ahead will be driven by inflation data, the start of earnings season, and signals from the Federal Reserve. Tuesday’s Consumer Price Index (CPI) report will provide the first meaningful indication of whether recent energy market volatility is beginning to feed into broader price pressures, with significant implications for the path of monetary policy. Investors will also receive the first major earnings reports from large U.S. banks, offering an early read on loan demand, credit quality, and the broader health of the economy ahead of a busy reporting season. Finally, Chair Kevin Warsh’s testimony before Congress will be closely watched for any additional insight into the Fed’s evolving policy framework, even if significant surprises appear unlikely. Retail sales data for June and consumer sentiment readings will round out the torrent of data this week.