Markets had plenty to digest last week. Headline inflation cooled more than expected, with a monthly drop that was the largest since April 2020. But the calm didn't last.

 

Renewed U.S.-Iran hostilities sent oil prices climbing and rattled AI-linked semiconductor stocks, even as Q2 earnings season opened strong. Investors spent the week weighing solid corporate profits against fresh geopolitical risk.

 

 

Stock Index Performance

• The S&P 500 declined 1.55%.
• The Nasdaq 100 slumped 4.13%.
• The Dow Jones Industrial Average edged down 0.93%,

 

 

The Forces at Play

Inflation cools, but the Federal Reserve stays cautious. June's Consumer Price Index (CPI) data came at 3.5% year-over-year, giving markets some relief. The economy remains resilient, with growth still tracking near 2.3% for the year. However, Fed officials remain split on how quickly inflation will fall, and the current policy rate is likely to stay in place. Geopolitical shocks from the Iran conflict now complicate that outlook further.

 

Oil climbs as tensions with Iran disrupt shipping. Renewed hostilities between the U.S. and Iran pushed Brent crude oil toward one-month highs, as shipping through the Strait of Hormuz was interrupted. Domestically, gas prices rose roughly 10 cents a gallon over the week. Some policymakers worry higher energy costs could keep inflation elevated longer than expected, even as demand forecasts hint at longer-term relief.

 

Bank earnings solid, but chip stocks stumble. Major banks posted results that pointed to a healthy credit environment and a resilient consumer. Major indexes edged higher Wednesday as earnings and softer inflation data lifted sentiment. Retail and travel stocks led the gains. Semiconductor and AI-linked names moved in the opposite direction, selling off sharply later in the week on profit-taking and valuation concerns.

 

 

 

The Week Ahead

Looking ahead, investors will get a fresh round of U.S. data. Weekly jobless claims arrive Thursday, July 23. Flash readings on business activity and new home sales for June follow Friday. Together, these reports will shape expectations about how long interest rates will remain elevated. At the same time, Q2 earnings season continues, offering a read on whether profits and market leadership are broadening beyond a handful of AI-driven mega-cap tech stocks.

 

 

 

 

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