Weekly Newsletter: July, 13, 2026
It has always been understood that the financial markets are forward-looking. That does not mean that they get that view correct, as expectations and conditions change. Before looking forward, a brief look at the second quarter may be instructive for what may be ahead. The second quarter was dominated by technology, to the point that it was the ONLY sector to outperform the SP500 during the quarter. There have been five instances of two outperforming, but never just one. The weight within the SP500 of technology and related issues nearing 50% makes it a bit easier to see that happening again if investors continue to pile into the AI and related stocks. BUT, in the first few trading days of this quarter, the best performing stocks were among the worst during the first half of the year, while the best were among the worst. As earnings season gets started, the big question will be whether that rotation from best to worst will continue. The past week had little in the way of economic data, but the release of the Fed minutes showed a Fed that is struggling with inflation. Will it ease as energy prices come down or remain high as semiconductor prices rocket higher? More importantly, can the Fed do anything about either of those? This week, Chair Warsh will be in front of Congress in what has become more political theater than probing for an understanding of monetary policy. Either way, the markets will be listening for any nuggets that may provide some direction on monetary policy.
The on-again, off-again war with Iran continues to garner headlines, but this time around merely a yawn from the markets. Energy prices and bond yields have ticked a bit higher, but not the huge swing that happened when the war began. Energy prices and their impact on inflation are likely to be analyzed to death as the inflation reports are released this week. One other factor that may come into play is the rapidly rising prices for computer chips. The drop in energy prices could be, at least partially offset, by the higher chip prices. This week too, earnings season begins. Expectations are high, especially for the aforementioned chip companies. AI spending will be watched closely as well. If there is a slowdown in spending on data centers, announcements of additional capital raises by companies, or an acknowledgement that the profitability of AI (and the data centers) will be much longer than expected could send a chill through the tech sector. So far, the recent earnings numbers from Micron and the wellreceived IPO from SK Hynix are keeping expectations high.
The bond market has moved alternately between expecting lower or higher rates. Since Halloween, bonds have rarely spent more than 3-4 weeks in either rally or selling mode. The most recent rise in rates is at the “long” end of the maturity schedule, with 30-year yields rising nearly a quarter point, while the shortterm maturities remain steady. The long-term yields are more a function of worries about inflation, while the short-term is more controlled by Fed rate change expectations. The inflation data this week could move both parts of the bond market dramatically IF inflation is far from the expected 3.8% headline and 2.8% core data points.
As mentioned above, the first half of the year has been all about technology stocks, with the top 4% of the stocks within the SP500 all doubling in price, with only three of the twenty from outside of tech. Earnings season will be instructive for not only the tech sector, but also for the rest of the market. Is the rising tide of technology lifting all boats or merely sinking everything non-technology related? Consumer spending through many of the consumer staple companies may help understand shifts in spending patterns. Earnings from transportation companies can shed light on the health of the supply chains. As usual, the important part of the earnings reports will be guidance. More than what have you done for me lately, but what do you see coming down the pike in the last half of the year. Many companies have seen stock prices decline after a good earnings report, but guidance that was less than rosy. The banking stocks kick things off on Tuesday. Like the weather, the heat will be turned up on Wall Street beginning this week.
Earnings start this week, but seasonally, this week also marks the beginning of the rough patch of the calendar for stocks that extends over the next three months. Hopefully the earnings can keep things positive.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.