What Happened Last Week
- AI-Led Selloff: The Nasdaq-100 Index fell more than 4% and dragged global stocks down with it.
- Resilience Beneath the Surface: Small-caps and value stocks advanced, while strong bank earnings and constructive economic commentary showed that the weakness did not extend across the broader market.
- Inflation Data: The coolest core Consumer Price Index (CPI) reading since 2021 reduced expectations for rate hikes, but a 15% rise in crude oil and declining traffic through the Strait of Hormuz limited the relief in bond markets.
What We’re Watching This Week
- Earnings Week Two: Results from Alphabet, Tesla, IBM, and Intel will test AI spending, software demand, and investor tolerance for elevated expectations.
- Middle East: Markets will monitor the conflict and shipping through the Strait of Hormuz for signs of whether the renewed energy shock is intensifying or easing.
- Economic Data: Jobless claims, preliminary business surveys, and housing data will provide incremental reads on growth ahead of next week’s Fed meeting.
Investment Management Team’s Views
AI anxiety and renewed tension with Iran weighed on the market’s most crowded leaders last week. The Nasdaq-100 declined by more than 4%, with the sharpest losses concentrated in other crowded parts of the AI infrastructure trade, including semiconductors and Asian emerging markets. Positioning likely amplified the move as investors reduced risk ahead of hyperscaler earnings. Beneath the surface, however, small-caps and value stocks advanced, while large banks delivered strong results and constructive economic commentary. The divergence suggests last week’s weakness reflected renewed uncertainty around the AI theme rather than a broad deterioration in fundamentals.
A favorable inflation report provided surprisingly little relief as energy risks returned to the foreground. June core CPI posted its coolest month-over-month reading since 2021, leading investors to reduce expectations for rate hikes and pulling short-term yields modestly lower. Still, rates did not respond as positively as the data appeared to warrant, likely because renewed fighting in the Middle East drove crude oil sharply higher and reduced traffic through the Strait of Hormuz. We continue to believe AI matters more than oil for equity markets, but the global energy system has less spare capacity than it did earlier this year. A prolonged disruption from this point would therefore carry greater consequences for inflation, rates, and growth.
The week ahead will put technology leadership back under the microscope. Earnings from Alphabet, IBM, Tesla, and Intel will provide important reads on AI capital spending, software demand, and whether elevated expectations can withstand a more volatile macro backdrop. The economic calendar is lighter – jobless claims, preliminary business surveys, and housing data will provide incremental updates on growth. With Fed officials in their blackout period, corporate results and developments in the Middle East are likely to set the tone as investors determine whether last week’s technology selloff was a positioning reset or the start of a more meaningful shakeout.