Weekly Market Recap: Tech Retreats as Oil Surges and Cooling Inflation Tempers Fed Fears

Market Overview

U.S. equities ended the week lower as investors balanced renewed Middle East tensions, elevated artificial intelligence valuations, and the early stages of earnings season. The S&P 500 declined 1.55%, while the Nasdaq fell 2.90%. The Dow Jones Industrial Average lost 0.93%, and the Russell 2000 finished 0.51% lower.

Growth stocks faced the greatest pressure, with the Russell 1000 Growth Index falling 3.64%, compared with a 0.45% gain for its value counterpart. Technology declined 3.8% and communication services fell 2.4%, while energy surged 5.0% as escalating U.S.–Iran hostilities raised concerns about supply disruptions in the Persian Gulf. Real estate gained 2.3%, and consumer staples advanced 1.4%.

Artificial intelligence remained a major source of volatility. Taiwan Semiconductor’s increased capital spending plans raised questions about whether the industry’s significant investments will generate sufficient returns. Reports of competitive progress from China’s Moonshot AI and delays involving Alphabet’s latest model added to concerns surrounding crowded technology positions.

Early earnings results provided some support. Several major U.S. banks exceeded expectations and reported strong trading revenue. However, Netflix shares declined after management forecast another quarter of slowing sales growth.

International markets also weakened. The MSCI EAFE declined 0.81%, while emerging markets fell 4.10%. European equities were pressured by rising energy prices and softer economic growth expectations. Asian markets experienced broader selling as investors reduced exposure to semiconductor and AI-related companies, particularly in South Korea and Taiwan.

Federal Reserve Insights and Economic Roundup

Core bonds advanced modestly as cooler inflation data reduced expectations for additional monetary tightening. The Bloomberg U.S. Aggregate Bond Index gained 0.13%, while investment-grade corporates rose 0.07% and high-yield bonds added 0.03%. Municipal bonds declined 0.43%.

Treasury yields were relatively stable. The 2-year Treasury yield declined to 4.18%, while the 10-year yield edged down to 4.55%. The 30-year yield remained unchanged at 5.06%. The average 30-year fixed mortgage rate increased slightly to 6.61%.

During congressional testimony, Federal Reserve Chair Kevin Warsh emphasized that policymakers have no tolerance for persistently elevated inflation and are not in a hurry to lower interest rates. He also signaled a preference for less forward guidance while reaffirming the Federal Reserve’s commitment to following economic data and maintaining its independence.

June’s Consumer Price Index provided some relief. Annual headline inflation eased to 3.5%, while core inflation declined to 2.59%, its lowest level since February. Falling transportation services, medical care services, and energy prices helped moderate the report. However, the recent increase in oil prices could place renewed upward pressure on consumer prices during July.

Crude oil rallied more than 10% as six consecutive days of military strikes limited tanker traffic through the Strait of Hormuz. Gold and silver declined as investors weighed inflation risks against the Federal Reserve’s cautious policy stance. The U.S. dollar finished little changed.

The latest inflation readings make a near-term rate increase less likely, but geopolitical developments remain an important risk. A prolonged energy disruption could eventually spread into transportation, production, and consumer prices, complicating the Federal Reserve’s path through the remainder of the year.

The Week Ahead

Monday: Investors will receive the June Leading Economic Index, offering insight into the economy’s near-term direction.
Tuesday: Markets will review the latest ADP weekly employment figures and the July Philadelphia Fed Non-Manufacturing Activity Index.
Wednesday: The MBA Mortgage Applications report will provide an update on housing demand and borrowing activity.
Thursday: Initial and continuing jobless claims will be released alongside the Chicago Fed National Activity Index and Kansas City Fed Manufacturing Activity Index.
Friday: Investors will monitor preliminary U.S. manufacturing, services, and composite PMI data, along with new home sales, final building permits, Kansas City Fed services activity, and the Bloomberg U.S. Economic Survey.