Markets Under Pressure as Technology, Energy Uncertainty Grips Stocks

U.S. stocks traded volatile so far this week as investors balanced encouraging inflation readings, the start of second-quarter earnings season, and continued weakness across semiconductor stocks.

As the market heads deeper into earnings season, investors remain focused on four key questions:

• Can Big Tech justify elevated AI-driven valuations and weakening sentiment despite the positive outlook?
• Can cooling inflation become a trend and not be a one-off on weakening CPI and PPI June numbers?
• Will geopolitical risks and rising oil prices reignite inflation pressures?
• What impact will earnings have on markets as we move into the ‘thick’ of quarterly results?

This week's market action highlighted a familiar narrative: good earnings and cooling inflation are supporting stocks, but semiconductor weakness and geopolitical uncertainty are creating pockets of volatility that investors must navigate. Earnings will be the focus over the next several weeks, but geopolitical risks remain in investors’ crosshairs.

The S&P 500 (SPX) is down 0.6% this week but remained just 1.1% below its record high as of Thursday’s closing price, supported by strong Magnificent 7 performance and better-than-expected earnings from several large financial companies. The tech-heavy Nasdaq-100 is another story: it has fallen 2.7% so far this week, which is about 5.6% off of its all-time highs from early June. With stock futures down sharply in premarket trading today, the volatility may continue into the end of the week. The sector rotation out of chip stocks and information technology has continued to weigh on the major indices, but investors have remained resilient as they search out other sectors within the market.

The semiconductor sector has taken it on the chin this week. The Philadelphia Semiconductor Index (SOX) is down 8.5% this week and is off nearly 17% in July after hitting all-time highs on June 22. Memory chip stocks are a major cause of the slide with Micron Technology (MU) falling nearly 13% so far this week. The big winners this year, Western Digital (WDC), Micron, Seagate Technology (STX) and SanDisk (SNDK), are down more than 30% from their recent record highs. Semiconductor equipment makers are also under pressure with Lam Research (LRCX), KLA Corp. (KLAC), and Applied Materials (AMAT) all down more than 20% this month. As tech stocks are a large component of the major indices, this has weighed on the overall market this week and may continue to wrap up the week as the tech-heavy Nasdaq-100 is down over 1% ahead of Friday’s opening bell.

Geopolitical risks have also risen as the U.S. and Iran have traded attacks this week. Oil prices have reignited with WTI crude rising over 10% this week.

Cooling inflation was a benefit earlier this week. June CPI data came in softer than expected, easing concerns about further Federal Reserve tightening and boosting risk appetite. The headline June CPI came in at -0.4% month over month, which was below the -0.1% expected. The year-over-year was 3.5% and far below the 4.2% for May. The wholesale data was also below expectations, with PPI at 5.5% year-over-year, which was below May’s 6.5% reading. Expectations for rate hikes this year fell, but markets are still anticipating a rate hike this year according to the CME Fedwatch tool. It’s currently projecting a 60% chance of a 25-basis-point hike at the October meeting despite the falling inflation data. More here on this question: How Can Structured Income ETFs Help Retirees Beat Inflation?

Earnings season kicked off this week with the major financial companies reporting solid beats. JP Morgan Chase (JPM) delivered the largest quarterly profit in U.S. banking history and trading revenue at Goldman Sachs (GS) and Morgan Stanley (MS) was far above expectations. Volatile markets and massive IPOs—such as the SpaceX (SPCX) public offering—supported investment banking fees and equity trading desks. Earnings beats from GE Aerospace (GE) and Taiwan Semiconductor (TSM) failed to impress investors and their shares fell Thursday. With a high bar set on some stocks, investors sold post-earnings on potential profit-taking.

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