Weekly Market Recap: Big Tech Drives Gains as Markets Look Past Middle East Tensions

Market Overview

U.S. equities showed resilience during the first full week of July, advancing despite renewed tensions between the United States and Iran. The S&P 500 gained 1.26%, while the Nasdaq rose 1.74% as investors returned to momentum-driven technology and artificial intelligence stocks. The Dow declined 0.48%, and the Russell 2000 fell 0.60%, reflecting continued concentration in large-cap growth companies.

Technology led all sectors with a 3.4% weekly gain, followed by Energy at 3.2% and Communication Services at 2.4%. Materials declined 2.2%, while Health Care and Consumer Staples fell 1.8% and 1.2%, respectively. Corporate developments involving AI infrastructure, semiconductor production, and major technology partnerships helped reinforce optimism around long-term capital spending.

International equities were weaker. The MSCI EAFE declined 1.37%, while emerging markets fell 1.73%. European markets retreated from recent record highs as rising oil prices renewed inflation concerns. Asian markets were mixed, with Hong Kong benefiting from technology optimism while South Korea, Japan, and Taiwan faced pressure from renewed selling in technology shares.

Fixed income markets also moved lower as Treasury yields climbed. The 2-year Treasury yield increased to 4.21%, the 10-year reached 4.56%, and the 30-year rose to 5.06%. The Bloomberg U.S. Aggregate Bond Index declined 0.44%, although high-yield bonds posted a modest gain.

Oil moved above $70 per barrel following disruptions in the Strait of Hormuz before trimming its advance as diplomatic discussions continued. Gold and silver declined as investors prepared for interest rates to remain elevated, while the U.S. dollar finished the week little changed.

Federal Reserve Insights and Economic Roundup

Despite rising yields, demand for Treasury securities remained healthy. The Treasury Department’s combined $119 billion offering of 3-year, 10-year, and 30-year debt was well received, with all three auctions clearing at yields below prevailing market levels.

The strong demand suggests institutional investors increasingly view elevated real yields as an opportunity to secure attractive inflation-adjusted income. Fiscal deficits and heavy Treasury issuance remain long-term considerations, but this week’s auctions helped ease concerns about the market’s ability to absorb additional government debt.

June’s ISM Services report also pointed to continued economic resilience. Employment improved, potentially supported by World Cup-related hiring, while activity remained strong across health care, retail, infrastructure, and environmental services. Input prices fell to their lowest level since February, indicating that some recent inflation pressures may not persist.

Consumer spending and AI-related capital investment should continue supporting economic growth, although labor costs, supplier constraints, and regulatory expenses remain challenges. Overall, the report supports an above-trend growth outlook and helps explain the upward pressure on longer-term Treasury yields.

Inflation conditions may continue to improve as geopolitical and tariff pressures ease. However, current economic strength is unlikely to convince the Federal Reserve to materially soften its cautious policy stance in the near term.

The Week Ahead

Monday: Investors will review the June federal budget balance.
Tuesday: Markets will focus on small business optimism, ADP employment, real earnings, CPI, and international capital flows.
Wednesday: Mortgage applications, the Empire Manufacturing Index, PPI, and the Federal Reserve’s Beige Book will be released.
Thursday: Attention will turn to regional business surveys, retail sales, jobless claims, housing sentiment, business inventories, and pending home sales.
Friday: The week will conclude with import and export prices, housing starts, building permits, industrial production, capacity utilization, and preliminary consumer sentiment.