Executive Summary
US Markets. Major U.S. stock indexes closed the week mixed, as a late-week rebound in semiconductor and artificial intelligence (AI)-related shares helped the Nasdaq Composite and the S&P 500 Index overcome earlier volatility that was driven in part by higher oil prices and renewed hostilities between the U.S. and Iran. The Nasdaq led the major benchmarks with a 1.7% gain, while the S&P 500 advanced 1.2%. In contrast, the small-cap Russell 2000 Index fell 0.6%. Growth stocks outperformed their value counterparts.
Within the S&P 500, information technology led sector performance, while the energy and communication services segments also posted strong gains. Materials and health care were the weakest performers.
Europe. The pan-European STOXX Europe 600 Index ended the week down 1.8% in local currency terms. Geopolitical tensions remained at the forefront as the ceasefire between the U.S. and Iran collapsed. Investors considered the possible implications for inflation and monetary policy, with markets increasing their expectations for European Central Bank (ECB) tightening where the ECB is one mandate focused on price stability unlike the US Fed dual mandate which also includes job stability.
What’s Next? Investors are looking ahead to a busy week that includes the start of second-quarter earnings season, inflation data, and the June retail sales report.
Treasuries Prices Down/Yield Up. U.S. Treasuries generated negative returns as rising oil prices and the somewhat hawkish Fed minutes helped push yields higher across most maturities. The yield on the 10-year U.S. Treasury note increased to about 4.56% from 4.49% at the end of the previous week. Investment-grade corporate bonds also declined, underperforming Treasuries, while new issues (mostly hyperscaler borrowers) were generally oversubscribed. Meanwhile, high yield bond market sentiment weakened midweek as geopolitical headlines drove oil prices higher and revived inflation concerns.
U.K. Confidence? Last week, Parliament gave their backing to Andy Burnham to succeed Keir Starmer as leader of the governing party. This could pave the way for Burnham to be formally announced as party leader and Prime Minister by July 20.
Key Takeaways
-
Oil prices rose this week as the U.S.-Iran ceasefire gave way to renewed conflict. After roundtripping back to $70 a barrel during Q2, crude reversed course and rose this week. West Texas Intermediate rose more than +4% to $73, and Brent, the international benchmark, rose +5% to $78, after the U.S. struck Iran and the White House said the ceasefire was over. The move followed renewed disruptions in the Strait of Hormuz, the waterway that carries a large share of the world’s oil, after Iran attacked passing vessels. Prices steadied late in the week as traders reassessed the supply impact. Implication – Energy prices had retraced their spring spike, and last week’s move puts oil back at the center of the inflation picture after weeks of relief.
-
The Federal Reserve’s June minutes revealed a divided committee. Minutes from the meeting, released Wednesday, showed Federal Reserve officials were split over whether their next move should be a cut or a hike. Some made the case for higher rates, citing inflation risks from the Middle East conflict, tariffs, and AI spending, while others saw a cooling job market as a reason to lower interest rates. The committee left its benchmark rate unchanged in a range of 3.50% to 3.75%, where it has held all year, and it meets later this month. Implication – The Fed had been cutting rates before pausing this year, and the divide suggests it is likely to hold steady again this month, though there are forecasts for the Fed to hike later this year. Last week’s Housing data were weaker, with existing home sales falling 2.4% in June to a seasonally adjusted annual rate of approximately 4 million, as elevated prices and borrowing costs continued to weigh on affordability. We believe a soft housing market will weaken overall inflationary metrics.
-
Job growth slowed to its weakest pace in four months in June. Employers added +57,000 jobs, below the +115,000 economists expected, and figures for April and May were revised down by a combined -74,000. Despite the June slowdown, labor conditions have improved this year. Hiring averaged +92,000 a month over the first half of 2026, a clear improvement from the roughly -7,000 jobs lost each month in the second half of last year. In addition, the unemployment rate has declined to 4.2% after peaking at 4.5% in Q4 last year. Implication – The jobs report suggests the labor market is stabilizing after softening in the second half of 2025.
-
Stocks closed out a strong first half at record highs, even after a late pullback. The Dow Jones Industrial Average gained nearly +10%, its best start since 2021. The S&P 500 advanced +10.2%, and the tech-heavy Nasdaq 100 gained +20% as tech stocks returned more than +30%. The Russell 2000 small-cap index rose nearly +22%, its best first half since 1991. Implication – The gains reached well beyond the handful of mega-cap tech stocks that led the market in recent years, making for a broader, more balanced market.
-
**Semiconductor stocks have been volatile in recent weeks after gaining nearly +80% in the first half. **The group carries high expectations, which can make it quick to react to news and shifts in sentiment. South Korea’s Samsung reported record profit that beat estimates but fell short of the market’s elevated AI expectations, triggering a semiconductor selloff on valuation concerns. Renewed questions about how much the largest tech companies are spending on AI infrastructure and whether that pace can hold added to the swings. Implication – The semiconductor trade has become popular and leveraged, which can magnify the moves in both directions. The group makes up a large share of the major indexes including at its peak approximately 18% of the S&P500, so its swings tend to pull the broader market along.
