Summary
Highlights
Mark Malkiel, founder of Wall Street Truth Bombs and CIO at Seibert Financial, introduces the weekly market recap. He highlights how the market absorbed significant bad news this week, including escalating Middle East tensions and a divided Federal Reserve, yet still managed to approach record highs by Thursday.
The Middle East saw significant escalation, starting with Iran firing on three ships in the Strait of Hormuz, including a Qatari LNG carrier. The US retaliated with strikes on Iranian coastal sites and revoked waivers for Iranian oil sales. Iran escalated further, claiming strikes on US-allied sites. Brent crude oil prices jumped, and global equities, particularly South Korea's KOSPI, saw significant sell-offs.
The Fed's minutes from the June 17th meeting revealed a committee divided on monetary policy. While a unanimous hold at 3.5 to 3.75% was decided, some participants wanted to raise rates. The minutes highlighted disagreement on whether current policy is restrictive and outlined two paths for the economy: inflation fading or sustained by factors like AI demand and geopolitical tensions. AI demand was specifically flagged as an inflation risk.
The AI infrastructure trade proved to be the week's winning theme. Micron increased its US investment to over $250 billion and secured a new $3 billion silicon wafer deal. Meta announced plans to manufacture its own custom AI chips, and SK Hynix, a key Nvidia supplier, completed the largest ever first-time US listing by a foreign company, raising $26.5 billion. This surge in AI investment overshadowed geopolitical concerns and Fed division. However, while chip and memory makers thrived, Morgan Stanley noted that hyperscalers buying this hardware lagged, raising questions about their returns.
Recent economic data indicates a cooling economy. Weekly initial jobless claims fell, but this was set against poor prior payroll reports with significant downward revisions. Existing home sales also fell below estimates, signaling the continued impact of higher interest rates on the housing market. Malkiel points out a growing gap between Wall Street, driven by AI capital spending, and Main Street, showing signs of economic slowdown.
Next week is a full trading week packed with crucial economic data and the start of Q2 earnings season. Key releases include June Consumer Price Index (CPI) and Producer Price Index (PPI), which will provide insight into inflation, and June retail sales, a critical indicator of consumer strength. The preliminary University of Michigan Consumer Sentiment reading will gauge consumer confidence. Major banks like JP Morgan Chase, City Group, Wells Fargo, Goldman Sachs, Morgan Stanley, and BlackRock will report earnings, setting the tone for the rest of the season and offering insights into net interest margins, credit quality, and real estate exposure. Additionally, Fed officials will be speaking publicly before their blackout period.
The market demonstrated remarkable resilience, recovering from geopolitical and Fed-related challenges, primarily fueled by AI capital spending. However, the upcoming inflation data (CPI and PPI) and bank earnings will be crucial in determining whether this strength is sustainable or merely borrowed. Investors should closely watch hyperscalers and CPI for future market direction. Mark Malkiel encourages viewers to like and subscribe for more market insights.