July's standout developments: the SOX Index dropped 20.6% and DRAM makers slid 31.8% as investor focus shifted from AI demand to returns on massive capex — yet hyperscaler earnings from Microsoft (+24.6%) and Amazon (+13.9%) reinforced robust AI demand. Blended Q2 EPS growth reached 47.4% with 86% of S&P 500 companies beating estimates. The Fed held at 3.50%–3.75% amid internal dissent, with markets pricing ~65% odds of a September hike. Portfolio considerations address momentum unwinds, rising long-end Treasury yields, and the AI narrative shifting from demand to return on investment.
From the original report
Selected passages from the original publication. Historical observations reflect the report's publication date, not current market advice.
1) The Chips Were Down – Last month we noted the chips were not (yet) down. In July, they fell: the SOX Index dropped 20.6% and DRAM makers slid 31.8% as investor focus shifted from AI demand to the returns on massive capex. South Korea saw the most acute volatility as sharp swings in SK Hynix and Samsung prompted multiple trading halts.
2) Earnings Firing on All Cylinders – With over 60% of the S&P 500 reporting, blended Q2 EPS growth reached 47.4%, 86% of companies beat estimates, and aggregate earnings topped consensus by over 31%. Jobless claims hit their lowest level since 1969 and inflation readings cooled – a resilient-growth backdrop beneath the tech turbulence.
3) A House Divided – The Fed held rates at 3.50%–3.75%, but three officials dissented in favor of a hike, underscoring growing division within the committee. Chair Warsh again declined to offer forward guidance. Markets now assign ~65% odds to a September hike, while trimming expectations for further tightening thereafter.
When Momentum Unwinds – July’s semi and memory washout looked like the unwind of a crowded momentum trade rather than a demand collapse: hyperscaler results from Microsoft (+24.6%) and Amazon (+13.9%) reinforced robust AI demand and improving monetization. When positioning is one-sided, the exits can get narrow – a reminder of why it can be important to diversify beyond any single theme.
The Bitter End – Treasury rates at the long end of the curve have steadily marched higher – even as short-term rates peaked in 2023 – with the 30-year reaching its highest level since 2007. Inflation expectations have been anchored, however the term premium (compensation required for tying up capital) has increased by roughly 1.5% over this period. Oft-cited drivers are rising deficits, quantitative tightening, and uncertainty about the Fed’s reaction function as Chair Warsh seeks to limit guidance.
For educational purposes only; not individualized investment, tax, or legal advice. Investing involves risk, including loss of principal.
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