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Strong Analyst Support Meets a Weakening Growth Trade
The market is sending two messages at once.
The long-term earnings and artificial intelligence story remains strong. But short-term price action is punishing crowded growth trades, particularly in semiconductors.
This is a market where research and patience matter more than chasing the stocks with the biggest projected gains.
Weekly Market Insights
The AI trade finally hit turbulence
The S&P 500 fell 1.6% last week, while the Nasdaq Composite declined 2.9% and the Dow lost 0.9%. Smaller companies held up slightly better, with the Russell 2000 falling approximately 0.5%.
Semiconductors were at the centre of the sell-off. The Philadelphia Semiconductor Index finished Friday more than 20% below its June high, entering bear-market territory after one of its steepest weekly declines in more than a year.
This doesn’t mean the AI investment cycle is finished. Instead, expectations got very high, too many investors crowded in, and even strong results weren’t enough to push share prices higher.
Earnings remain stronger than the market mood
The sell-off arrived despite a solid start to earnings season.
Of the first 49 S&P 500 companies to report, approximately 90% exceeded expectations. Analysts now expect aggregate second-quarter earnings to grow by around 26% year over year, up from estimates of 19.2% at the start of April.
So, the market isn’t facing falling corporate profits. The real issue is the gap between solid business results and high stock prices.
That distinction matters.
A company can post great results and still see its stock drop if investors were already expecting near-perfect performance.
Inflation improved, but oil is complicating the picture
June’s US inflation report was encouraging. Headline consumer prices fell 0.4% month over month, while core inflation was unchanged. Annual headline inflation slowed to 3.5%, with core inflation easing to 2.6%.
Consumer spending also remained resilient. June retail sales increased 0.2% from May and were 6.7% higher than a year earlier.
But rising energy prices are adding a new risk. Brent crude went over $90 a barrel on Monday as tensions grew in the Gulf. The US 10-year Treasury yield rose toward 4.55%, and the 30-year yield exceeded 5%. Higher oil prices and bond yields can quickly put pressure on expensive growth stocks.
The Federal Reserve next meets on July 28 and 29, so inflation, oil prices, and moves in the bond market will remain in focus.