What we learned last week:
“There was only one fly in the delicious ointment.” – F. Scott Fitzgerald, The Curious Case of Benjamin Button, 1922
A busy week for markets as investors digested the latest round of earnings, inflation data, and events out of Iran. All major US indexes were down on the week, led by tech-heavy Nasdaq which fell almost 3% from the previous week.
Starting on the bright side, the largest US Banks JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldmans Sach all beat expectations with their second quarter earnings reports and have a positive outlook on both commercial and consumer markets.
Staying on the bright side, last week’s inflation reports showed prices declined at a faster rate than economists’ expectations. Consumer inflation (CPI) moderated in June and fell 0.4% for the month. This price drop was the largest since April 2020. Additionally, wholesale prices (PPI) unexpectedly declined 0.3% in June. Both measures declined in large part due to falling oil prices.
Investor largely looked passed these reports, instead focusing on Iran and AI related news.
Jumping to the Middle East, five straight days of US attacks on Iran led to higher oil prices. U.S. and Iran stepped up attacks across the Gulf, with shipping is being threatened by a potential Red Sea closure on top of the restricted traffic through the Strait of Hormuz.
Both Brent (international market price) and West Texas Intermediate (US market price) futures were above $80 a barrel Friday and climbed nearly 13% to finish the week.
Wrapping up with US tech and the AI mega trend, IBM was the fly in the ointment. The company’s stock fell 26% last week after reporting earnings below expectations.
IBM did not anticipate the number of customers pulling commitments on their server, storage, and software products for memory products. Corporate IT budgets redirected spend dollars during the second quarter to memory chip products to get ahead of the rising prices and supply constraints in the chips market.
Adding to concerns of the change in spending patterns, reports that Google is behind schedule with its most powerful AI model, Gemini 3.5 Pro and an open source AI model unveiled by Moonshot, a Beijing based startup, “Kimi K3” shook assumptions of US dominance in AI.
The AI mega trend took a hit globally with AI chip companies being hit the hardest. Money has been rotating between chip stocks and the “Magnificent Seven” for the past couple of months. Ultimately, leaving major US indexes going nowhere.
Of note, Micron, the once 2026 leader, closed below $1 trillion market cap for the first time in six weeks last week.
Earnings and Iran will likely continue to shape the week ahead. Investors will be paying close attention to reports of several of the “Mag Seven” and AI adjacent companies in an important week for the near-term direction of the AI trend. Additionally, volatility in oil prices may continue to add volatility to global stock and bond markets this week.
What’s ahead this week:
Economic Reports
- Quite week of economic reports. S&P flash U.S. services and manufacturing PMI will provide indication private sector business health.
- New home sales experienced a sharp decline in May from April, June’s report will be looked at Friday for signs the housing market is improving.
Earnings
- Two of the MAG 7 companies, Google and Tesla report. Google will be closely watched by investors for its connection to the AI mega trend.
- Chip maker, Intel, has had a phenomenal year due to CPU chip demand and the U.S. Government investment in the chip maker
- GE Vernova, has played a critical role in the power data centers need to operate and will report earnings this week.
- Blue chips 3M, AT&T, and Honeywell
- Three of the largest U.S. defense contractors, Northrop Gruman, RTX, and Lockheed all report earnings
My goal is for you to feel educated and informed about variables we do and don’t have control over and find ourselves working within. I hope to do it in an informative and relatable way. As always, I value your relationship and planning objectives – my door is always open for conversation.
