• Stocks surge after post-Fed sell-off – Equity markets were sharply higher across the board on Thursday, after a late-day sell-off on Wednesday. The tech-heavy Nasdaq led the gains, up over 2.7%, while the S&P 500 was up about 1.7%. From a S&P sector perspective, the leadership was narrow, with technology far outpacing other sectors, up over 5%. This bounce comes after a sell-off on Wednesday, as stock and bond markets showed concern that the Fed kept rates on hold while acknowledging that inflation remains elevated. The ongoing escalation in Iran also added to uncertainty, with WTI oil prices briefly climbing back above $85. However, today oil prices dipped back below $84, and bond yields moved modestly lower across the curve. The earnings stories remain mixed across technology, with software giant Microsoft reporting strong earnings driven by its cloud business and AI-related revenue, while Meta missed earnings and saw declining free cash flow due to AI investment. Investors will be looking toward other large-cap tech earnings on Thursday, including reports from Amazon and Apple. Overall, the rotation theme in markets continues to remain intact. Outside of technology, value and cyclical parts of the market are showing signs of life, and within technology, investors were perhaps looking for value in the most downtrodden areas including software and semis.
   
• U.S. GDP growth softer, but consumption holds up – An advanced reading of second-quarter U.S. GDP growth showed economic growth cooling but still positive. GDP growth slowed to 1.5% annualized, below forecast of 2.0% and last quarter's 2.1% reading. However, the biggest contributor to growth remained personal consumption, which rose by 3.2%, above forecasts of 2.3%, suggesting household spending continues to support the broader economy. The detractors to growth for the quarter included government spending and net exports, implying trade remains a drag on economic growth. Of note, the personal consumption expenditures (PCE) price index, a preferred inflation metric for the Fed, was in line with expectations for June at 3.7% year-over-year, below last month's 4.1%. Core PCE inflation was also in line with forecasts, at 3.3%, slightly below last month's 3.4%. While core inflation did tick lower, it remains well above the Fed's 2.0% target, helping create a tougher backdrop for the Fed to remain neutral on rates. If these conditions hold between now and the next September 16 FOMC meeting, we think the Fed may feel obliged to take more decisive action and raise the fed funds rate to 3.75%-4.0%.
   
• Fed stayed on hold but ready to act – Alongside the conflict in the Middle East, Wednesday's Fed rate announcement was the primary focus for markets, arriving amid heightened uncertainty and renewed gains in energy prices. The Fed delivered a hawkish hold, keeping rates steady at 3.50%–3.75%, though three officials dissented in favor of a hike. Chair Kevin Warsh signaled comfort with markets doing some of the policy tightening, pointing to higher bond yields in recent weeks, and reiterated that the Fed will not hesitate to act if needed. The three dissents were not a surprise to us, but they do hint at the direction of travel if geopolitical tensions persist and the labor market remains resilient. We think September could be a live meeting, with the probability of a rate hike rising if geopolitical tensions persist and oil prices continue to trend higher. Upcoming inflation data for July and August will be critical in determining the Fed’s next move, in our view.

Mona Mahajan;
Investment Strategy

^{Source for all data: Bloomberg.}  

• Stocks decline as oil prices jump and long-term yields rise – Main equity market indexes declined more than 1.5% on renewed geopolitical tensions and investor concerns that the Fed is falling behind on inflation after it kept interest rates steady. Iran launched a missile strike on a U.S. base in Jordan that was intercepted, and President Donald Trump said the U.S. would retaliate, signaling a potential escalation following a recent pause in hostilities. In response, WTI oil prices jumped 7% to $85, still below last week’s $90 peak but up meaningfully from $70 at the end of June. Long-term bond yields rose after the Fed meeting, while the energy sector outperformed. On the corporate front, Visa posted 10% U.S. payments volume growth, the highest since 2019, and noted that the consumer spending environment remains strong across both discretionary and non-discretionary categories. In addition to geopolitics and the Fed, investors will be closely watching mega-cap tech earnings, with Microsoft and Meta scheduled to report after the close today, followed by Apple and Amazon tomorrow.
   
• Fedis on hold but ready to act – Alongside the conflict in the Middle East, today’s Fed rate announcement was the primary focus for markets, arriving amid heightened uncertainty and renewed gains in energy prices. The Fed delivered a hawkish hold, keeping rates steady at 3.50%–3.75%, though three officials dissented in favor of a hike. Chair Kevin Warsh signaled comfort with markets doing some of the policy tightening, pointing to higher bond yields in recent weeks, and reiterated that the Fed will not hesitate to act if needed. The three dissents were not a surprise to us, but they do hint at the direction of travel if geopolitical tensions persist and the labor market remains resilient. We think September could be a live meeting, with the probability of a rate hike rising if geopolitical tensions persist and oil prices continue to trend higher. Upcoming inflation data for July and August will be critical in determining the Fed’s next move, in our view.
   
• Broader leadership is helping cushion AI pullback - Concerns over the monetization of large AI investments and emerging competition from China have triggered a roughly 5% pullback in tech since the beginning of the month, with the Philadelphia semiconductor index down 22%. At the same time, as investors have rotated out of tech and AI, financials, energy, and healthcare have each gained more than 5%, helping the broader market hold up, with the equal-weight S&P 500 and the Russell 1000 Value index hitting all-time highs before today. In our view, this is a healthy market dynamic, as crowded positioning and leverage in parts of tech unwind. The good news, in our view, is that risk/reward has improved as valuations have reset and now trade at multiyear lows across several mega-cap tech names, potentially lowering the bar into upcoming results. As we move through a critical stretch of tech earnings, we expect investors to focus on whether companies can translate elevated AI investment into higher revenue, stronger margins, and expanding cash flow. In our view, the AI theme is maturing rather than breaking. Demand trends remain intact, and the cycle is still early in terms of adoption and dissemination. However, we think the next chapter for markets will be less about riding the wave and more about monetization. We continue to recommend maintaining exposure to AI-related allocations, while complementing them with more diversified and differentiated sources of return.

Angelo Kourkafas, CFA;
Investment Strategy

^{Source for all data: Bloomberg.}  

• Markets finish higher as broad gains offset tech pullback – U.S. equity markets closed higher on Tuesday, as gains across most sectors outweighed weakness in technology stocks. Selling pressure in semiconductor stocks appeared to carry over from Asian markets, where South Korea's Kospi index fell more than 10%. Overall, today's move was an extension of the recent trend of market leadership widening beyond technology. Bond yields declined, with the 10-year U.S. Treasury yield near 4.60%. In energy markets, WTI oil prices extended their decline, falling below $80 per barrel. The U.S. dollar weakened modestly versus major currencies, consistent with the drop in bond yields.
   
• Several Magnificent 7 companies to report earnings this week – Meta Platforms (Facebook, Instagram) and Microsoft are scheduled to release quarterly results Wednesday, followed by Amazon and Apple on Thursday. In addition to earnings results, investors will likely focus on capital-spending plans and evidence that substantial AI investments are translating into revenue and earnings growth. Alphabet (Google) raised its 2026 capital-expenditure forecast last week, which contributed to a negative reaction in its share price. In our view, this response reflects a shift in investor expectations: markets appear increasingly reluctant to reward higher AI spending on its own and instead are looking for progress in earning a return on that investment. More broadly, while earnings season is still in its early stages, results have been strong. With about a third of S&P 500 companies reporting, 85% have beaten analyst estimates by an average upside surprise of 37%. As a result, forecasts for second-quarter earnings growth have been revised higher to 36%, up from 22% at the end of the quarter. Energy companies are expected to post the strongest growth — supported by higher oil prices during the quarter — followed by the communications and technology sectors. Earnings gains are also forecast to be broad-based, with 10 of the 11 sectors expected to report year-over-year increases. If realized, we believe wider participation could help make the market's advance more durable by reducing its reliance on a small group of mega-cap companies. It could also help create a more favorable backdrop for diversified portfolios. We continue to recommend overweight positions in U.S. large- and mid-cap stocks, as well as emerging-market equities.
   
• Fed appears positioned for a hawkish pause– The Fed's Open Market Committee (FOMC) began its July meeting today, with markets expecting policymakers to maintain the fed funds target range at 3.5%-3.75%. We agree that no change is the most likely outcome, although one or two of the 12 voting members could dissent in favor of a rate increase. Because the rate decision itself is unlikely to surprise markets, we expect attention to center on any changes to the policy statement and Chair Kevin Warsh's tone in the press conference. With the Fed's employment mandate largely being met and inflation above the 2% target, we expect the policymakers to emphasize inflation risks and preserve the option to raise rates at a future meeting. That could make the September meeting more consequential. In our view, the likelihood of a rate hike is rising, especially if geopolitical tensions escalate and oil prices rebound. Conversely, the inflation outlook could become more balanced if the U.S.-Iran pause leads to a longer ceasefire and oil prices remain contained. Tighter policy cannot directly resolve a supply-driven inflation shock, but it can help prevent higher energy prices from becoming embedded in broader inflation expectations. Short-term bond yields have moved higher as markets price in a higher probability of Fed rate hikes, offering a better yield advantage versus cash yields, in our view.

Brian Therien, CFA;
Investment Strategy

^{Source for all data: FactSet.}  

• Markets edge higher as oil prices retreat to start a busy week – U.S. equity markets closed modestly higher on Monday as WTI oil fell sharply to about $82 per barrel. The U.S. and Iran have paused military strikes, creating an opening for diplomacy and reducing near-term concerns about disruptions to global energy supplies. Lower energy prices have also helped ease some inflation concerns, contributing to a decline in bond yields, with the 10-year U.S. Treasury yield near 4.65%. The positive tone extended internationally, with Asian equities finishing higher overnight and Europe also advancing.
   
• Several Magnificent 7 companies to report earnings this week – Meta Platforms (Facebook, Instagram) and Microsoft are scheduled to release quarterly results Wednesday, followed by Amazon and Apple on Thursday. In addition to earnings results, investors will likely focus on the companies' capital-spending outlook and progress in converting substantial AI investments into revenue and earnings growth. Alphabet (Google) raised its 2026 capital-expenditure forecast last week, which contributed to a negative reaction in its share price. In our view, investors increasingly want to see return on investment rather than spending growth alone. While still early in the earnings season, results have been solid so far. With 27% of S&P 500 companies reporting, 83% have beaten analyst estimates by an average upside surprise of 8.7%. As a result, forecasts for second-quarter earnings growth have been revised higher to 36%, up from 22% at the end of the quarter. Energy companies are expected to post the strongest growth — supported by higher oil prices during the quarter — followed by the technology and materials sectors. Earnings gains are also forecast to be broad-based, with 10 of the 11 sectors expected to report year-over-year increases. If realized, we believe wider participation could help make the market's advance more durable by reducing its reliance on a small group of mega-cap companies. It could also help create a more favorable backdrop for diversified portfolios, including value-oriented and cyclical allocations.
   
• Fed expected to hold rates steady – The Fed's Open Market Committee (FOMC) will conclude its July meeting on Wednesday. Markets expect policymakers to leave the target range for the fed funds rate unchanged at 3.5%-3.75%. We agree that holding rates steady is the most likely outcome, although a few dissenting votes in favor of a hike are possible. Investors will likely focus on any changes to the policy statement and Chair Kevin Warsh's tone in the press conference. Recent labor-market resilience and firmer inflation likely support a more hawkish message, making the September meeting look more consequential. In our view, the likelihood of a rate hike is rising, especially if geopolitical tensions escalate and oil prices rebound. Conversely, the inflation outlook could become more balanced if the U.S.-Iran pause leads to a longer ceasefire and oil prices remain contained. Tighter policy cannot offset a supply-driven inflation shock, but it can help anchor inflation expectations. With growth supported by resilient consumer spending and continued AI-related investment, we think the Fed will likely focus on whether inflation pressures are temporary or becoming more persistent in the months ahead.

Brian Therien, CFA;
Investment Strategy

^{Source for all data: FactSet.}  

• Stocks finish mixed with geopolitics and trade policy in focus – U.S. equity markets were mixed on Friday as reports indicated that Iran had rejected a new U.S. ceasefire proposal amid ongoing U.S. military strikes on Iranian targets. The S&P 500 finished little changed, while the technology-heavy Nasdaq declined 0.6%, pressured by weakness across the technology sector, particularly among semiconductor stocks. Outside of technology, markets were more resilient, with both the Dow Jones Industrial Average and the Russell Midcap Index posting modest gains. Despite the lack of diplomatic progress, oil prices eased, with WTI crude falling below $90 per barrel. Even so, crude prices finished the week approximately 9% higher. In addition to geopolitical developments, investors remained focused on trade policy after the U.S. administration announced new global tariffs ranging from 10% to 12.5%. The tariffs took effect overnight, replacing the temporary 10% levies that had been implemented in February. Overseas, Asian markets moved lower amid weakness in technology shares, while European equities closed mostly higher on signs of improving economic activity. The eurozone S&P Global Composite PMI rose to 51.9 in July, its highest reading in five months and the first indication of expansion in four months. Similarly, U.S. business activity strengthened in July, with the preliminary Composite PMI reaching an eight-month high of 53.6. Treasury yields ended the session slightly lower, with the 10-year Treasury yield falling to 4.68% and the 2-year Treasury yield closing at 4.33%.
   
• U.S. announces new global tariffs – With the global 10% tariff implemented under Section 122 in February expiring overnight, the U.S. administration announced replacement tariffs yesterday evening of 10%–12.5%, which it says are designed to combat forced labor. The newly implemented tariffs took effect overnight under Section 301 of the Trade Act of 1974. The Section 301 tariffs apply to 60 U.S. trading partners, although certain products—including oil, gas and fertilizers—are exempt. Additionally, the newly announced tariffs will not stack on top of existing tariffs imposed under Section 232, including those on steel and aluminum imports, while USMCA-compliant goods will retain their existing exemptions. Given that yesterday’s tariff announcement does not represent a meaningful change from the previous Section 122 tariff rate, we expect its economic impact to be limited. However, further trade-policy action remains possible. The U.S. is conducting investigations into industrial overproduction in 16 countries and economies including China, Japan, and the European Union. Separately, on Monday evening, the U.S. announced a 50% tariff on approximately $20 billion of Canadian goods, set to take effect in August. The upshot is that yesterday's announcement is unlikely to materially alter the near-term economic outlook because they largely preserve the existing tariff baseline, in our view. Trade-policy uncertainty may still weigh on investment among affected businesses, but we do not expect a return to the more disruptive tariff environment of spring 2025.
   
• Tech earnings to remain in focus — Following Alphabet’s earnings announcement Wednesday night, technology earnings and spending trends will remain in focus over the coming week, with Microsoft, Meta, Amazon, and Apple all scheduled to report. The technology-heavy Nasdaq fell more than 2% yesterday following Alphabet’s decision to raise its full-year capital-expenditure guidance, as investors appeared increasingly focused on the tangible returns generated by the substantial AI investment. Investors’ focus on earnings growth has meant that this year’s equity-market gains have been driven by expectations for stronger earnings rather than valuation expansion. In fact, while we would not characterize the market as cheap, the Nasdaq-100 trades at a modest discount to its 10-year average forward price-to-earnings multiple. Looking ahead, earnings growth is expected to remain solid this year, with the S&P 500 projected to see full-year earnings growth of 28%, with positive contribution from all 11 sectors and led by energy, technology and communication services. In our view, AI remains a durable investment theme, but diversification remains critical. As part of our opportunistic equity-sector guidance, we favor industrials, which could benefit from improving manufacturing activity as well as continued infrastructure and defense spending. We pair this cyclical exposure with communication services, providing participation in the AI investment theme.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.}