Good morning,
With apologies, this morning’s Morning Note will be brief. I am deeply under the weather with some sort of summer ailment—cold, flu, or simply a good old-fashioned beatdown.
Speaking of a beatdown, that also describes last week’s action across the major indices, led lower by semiconductors specifically and technology more broadly.
It was the first week of earnings season, and we learned that the expectations bar is indeed very high. Companies that missed projections were crushed, while even those reporting blowout earnings—including several of the banks—saw their shares rise initially but fail to hold those gains throughout the trading day. That is not a bullish signal.
The week ahead is light on economic data but heavy with earnings announcements. Alphabet’s report on Wednesday will be particularly important for the AI trade, especially its guidance on capital expenditures.
A peaceful resolution in Iran still appears unlikely, and I do not believe the full risk of a non-peaceful outcome is priced into the market. Yet International Developed was the best-performing major index last week—despite being the most exposed to disruptions in oil flows through the Strait of Hormuz and despite rising oil prices. Perhaps the risk is less severe than I fear.
As promised on Friday, with Q3 underway and news surrounding the Fed, Iran, the midterm elections, and much more, these are the market signals we will be watching most closely:
- Inflation: The decline in energy prices during June is now reversing in July.
- Recession risk: Economic data has been improving globally—particularly in Europe and other oil-sensitive economies—following the truce and lower oil prices. A reversal could begin to lift recession-risk models off the floor, where they have remained for several years.
- Investors’ reaction to stellar earnings: Will investors celebrate another quarter of record earnings, or begin to question whether the best news is already reflected in stock prices?
See you Friday.
Be well,
Mike