Markets Update - 8/3/26

Quick Summary

• US equity indices started Monday in the green on the back of President Trump announcing a restart of talks with Iran, which saw a drop in oil prices and some softening in bond yields, although the Nasdaq-100 lagged initially as a selloff in chipmakers resumed in Asia dampening US shares, even as gains were seen elsewhere in Tech.
• But indices would push sharply higher in the first hour as semiconductors recovered from early losses and gains broadened across the market and would climb for most of the session, led by the megacap growth rally. The Nasdaq Composite would finish +2.1%, the Russell 2000 +1.7%, the S&P 500 +1.5%, and the Dow Jones Industrial Average +1.3%, the last making a new all-time closing high.
• It was the best first trading day of a month for the Nasdaq, S&P 500, and Dow since October 2022, with the Nasdaq now up +6.1% over the past three sessions, its best three-day run since May 2025. The move though has been less about semiconductors as opposed to the “old” megacap guard, with the Mag-7 ETF up sharply over the same stretch adding a record amount of market cap as Amazon crossed over $3 trillion.
• As noted, though, participation was much broader Monday with eight of 11 S&P 500 sectors higher, and the equal-weighted S&P 500 +1.0%. The broader market was boosted by a sharp fall in oil prices after President Trump insisted that peace talks were imminent even as Iran said no such talks were scheduled.
• “I want to give them every last chance before decapitation,” Trump told reporters in the Oval Office Monday. “You’ll find out today or tomorrow. I mean, they’re going to go quickly, one way or the other. It’s not very complex.” In contrast, Iran said it’s talking to Oman about a “temporary” new route to ensure the safety of ships and not about whether the Strait as a whole will be open or closed, Esmail Baghaei, an Iranian foreign ministry spokesman, said Monday. “We are not currently negotiating with the United States.”
• President Donald Trump then accused Iran’s leadership of being “unbelievably duplicitous,” saying it was publicly denying negotiations while privately seeking talks. In a social media post Monday, Trump also said the U.S. Navy effectively controls the Strait of Hormuz through what he described as a “blockade” and reiterated that “Iran will never have a nuclear weapon.”
• The economic data were also supportive to the broader market. The S&P Global Manufacturing PMI remained solidly in expansion (although the release flagged several warning signs about the future growth trajectory). The ISM Manufacturing PMI was even more consistent in reflecting an accelerating economy rising to its highest level since May 2022 on broad expansion, led by production hitting a nearly five-year high, while employment returned to expansion for the first time since September 2023.
• Treasuries rallied to start August, pulling longer-term yields off their worst levels of the year as lower oil prices eased some inflation pressure.
• Attention now turns to another busy day of earnings, including AMD, and several more US economic reports as detailed in the subscriber section.

US equity indices started the day in the green and climbed for most of the session, led by the Nasdaq's +2.1% gain (up +6.1% last three sessions).

SPX +1.5%, RUT +1.7%, and DJIA +1.3% but was the only one to make an all-time closing high.

DJIA recording closing high. SPX just a touch short.

Some market commentary

“If we get something concrete on a peace deal, or more importantly the reopening of the strait of Hormuz, then we could see some strong relief rallies across the market,” said Nick Twidale, chief market analyst at AT Global Markets. “For now it feels we will continue to see volatility across different markets, especially as AI trade remains the dominant theme for equities.”

“Oil markets can’t yet put the Iran-US conflict in the rear-view mirror, with risks still skewed to the upside. Options markets continue to point to greater concern over higher prices than lower ones. That suggests the market continues to view a supply-driven price spike as a more likely risk than a sharp decline in Brent.” —Skylar Montgomery Koning, macro strategist

“investors are keeping their enthusiasm in check as ‘we’ve been here before’ and it’s likely the conflict has further to go before reaching a resolution (if it ever does),” wrote Vital Knowledge founder Adam Crisafulli.

“Geopolitical news is helping out with oil prices going down and easing pressure on yields,” said Alexandre Baradez, chief market analyst at IG in Paris. “There is, however, a real lingering issue on bond yields, on leverage, on Fed policy: until there’s clarity on these fronts, it’s hard to say that the stock market is all clear.”

“The weight of the AI sell-off is gone right as [Situational Awareness] got liquidated last week, and then the biggest thing is there was some fear going into the weekend of more Middle East instability,” Michael Monaghan, partner and portfolio manager at Founder ETFs, told CNBC. “Even though that ebbs and flows and seems to be on-off every single week, the tone and the rhetoric really seems to be we’re going to try and get this thing fixed.”

“The market is poised to get an early boost from falling oil, but the on-again, off-again nature of US-Iran diplomacy could mean earnings and jobs data will have to do the heavy lifting for the bulls this week,” said Chris Larkin at E*Trade from Morgan Stanley.

“A silver lining to the over-hanging clouds of recent volatility and selling has been some further reduction in the forward earnings multiple of the S&P 500 which ended last week at 19.7 times the next 12-month earnings estimates,” said John Stoltzfus, chief investment strategist and managing director at Oppenheimer Asset Management. “Stocks are getting relatively cheaper.”

Forces that propelled US stocks to record highs this year remain “firmly intact” after a reset in retail investors’ speculative trading, according to Citadel Securities’ Scott Rubner. “Markets are transitioning from a flow-driven environment back to one increasingly dictated by earnings, corporate demand, and the macroeconomic backdrop,” he wrote.

In today’s Markets Update

• A deeper look at Monday’s stock and sector breakdown, including the broad rally, continued Communication Services and Consumer Discretionary leadership and Mag-7 rebound.
• A closer look at key company movers and corporate developments, including Palantir after the close, Alphabet, Meta, Amazon, Tesla, Microsoft, Nvidia, AMD, Sandisk, Trump administration AI safety-testing plans, Boeing, Marriott, and Yum/Taco Bell.
• Updated daily and monthly technical charts across the SPX, Nasdaq, Russell 2000, and equal-weighted SPX.
• A review of market breadth and participation, including large individual winners and losers, strong NYSE and Nasdaq positive volume, and Nasdaq speculative trading activity.
• A look at the rates and Fed backdrop, including the moves in 2-year, 10-year, and 30-year Treasury yields, the Treasury’s updated Q3 borrowing estimate, and the setup into Wednesday’s quarterly refunding announcement.
• A look at volatility and market structure, including VIX, VVIX, 1-day VIX, and Tier1Alpha on SPX gamma positioning and key support/resistance levels.
• A review of cross-asset trends, including WTI crude, the dollar, gold, copper, natural gas, and bitcoin.
• Tier1Alpha on gamma, Yardeni on the summer stall and semiconductor weakness, MarketWatch/HSBC on the high-beta momentum unwind, Nationwide’s Mark Hackett on momentum volatility, BTIG’s Jonathan Krinsky on the momentum crash, Deutsche Bank on the rotation back into Tech and hyperscaler risk/reward, Goldman’s Oppenheimer on derated Tech shares, Bloomberg on factor rotation, Goldman’s Callahan on Sandisk, Goldman on AI-related investment, Bloomberg on hyperscaler capex, BoA/Hartnett on risk assets, BoA/EPFR on equity and Tech flows, Deutsche Bank on Tech credit spreads, AAII on Kevin Warsh, and the WSJ on HOA financial pressure.
• A wrap-up on the AI trade flipping back on, broader participation, positioning, long-end yields, systematic-flow risks, and the near-term market setup.
• A look ahead to Tuesday’s calendar, including US economic data, Fed speakers, SPX earnings, and ex-US highlights.

Stock and sector breakdown (in part from Briefing.com)

Unlike Friday where the solidly positive day on the SPX was due primarily to just two sectors with only 4 of 11 sectors in the green, Monday’s rally was much broader with 8 sectors higher, although led by the same two sectors with Comm Services +4.3% (after +4.6% Friday) and Consumer Discretionary +2.7% (after +6.1% Friday). But three other sectors were also up at least 1% (Industrials, Tech, and Materials), while just Energy was down more than -0.3%.

Leadership once again came from the market’s largest companies. Every Mag-7 stock up at least +2.9% (and four up over +4.4%) except one bad Apple (-1.8%). The communication services sector (+4.3%) paced the market as Alphabet (GOOG 372.47, +15.82, +4.44%) extended its recovery from a recent post-earnings selloff and Meta Platforms (META 590.24, +33.53, +6.02%) continued its rebound from multi-month lows. Those come after gains of +6.8% and +3.2% Friday respectively.

The consumer discretionary sector (+2.7%) also turned in a strong performance as Tesla (TSLA 322.08, +10.87, +3.49%) attracted another round of buy-the-dip buying, while Amazon (AMZN 284.02, +12.44, +4.58%) built on last week’s earnings-fueled surge and became the latest U.S. company to surpass a $3 trillion market capitalization. For Amazon that came after Friday’s +15.3% gain.

The top-weighted information technology sector (+1.6%) was another standout, supported by continued strength in Microsoft (MSFT 487.65, +22.93, +4.93%) following last week’s earnings report and a solid gain in NVIDIA (NVDA 206.64, +5.89, +2.93%), which reclaimed its 50-day moving average (205.85).

The sector steadily improved throughout the session due to a sharp reversal in semiconductor stocks. After opening with losses approaching 3%, the PHLX Semiconductor Index fought back to finish 1.1% higher, while software shares also enjoyed a strong session, lifting the iShares Expanded Tech-Software Sector ETF (IGV) 3.0%.

Investors now turn their attention to another busy stretch of tech earnings, with Palantir Technologies (PLTR 125.65, +2.59, +2.10%) set to report after the close (more below), while Advanced Micro Devices (AMD 484.64, +8.49, +1.78%) and several memory companies including Sandisk (SNDK 1288.03, +73.20, +6.03%) report in the coming days.

Although mega-cap technology once again accounted for much of the index-level advance, participation remained healthy across the broader market. The S&P 500 Equal Weight Index climbed 1.0%, eight of the 11 S&P 500 sectors finished higher, and advancers comfortably outpaced decliners throughout the session. Smaller-cap stocks also participated, with the Russell 2000 rising 1.7% and the S&P Mid Cap 400 gaining 1.1%.

The energy sector (-1.5%) finished as the session’s primary laggard, with Exxon Mobil (XOM 155.05, -0.39, -0.25%) and Chevron (CVX 193.18, -3.65, -1.85%) also pressured after President Trump said oil companies were earning excessive profits and should lower retail gasoline prices.

Elsewhere, the consumer staples (-0.3%) and health care (-0.2%) sectors posted modest losses as investors rotated away from more defensive areas of the market in favor of higher-growth opportunities.

But Monday's Nasdaq rally wasn't about semiconductors, instead the "old" guard with the MAGS Mag-7 ETF +9.3%, the best 3-day percentage gain also since May 2025, and the largest ever in market cap terms, adding ~$1.9 trillion according to MarketWatch.

Every Mag-7 stock up at least +2.9% (and four up over +4.4%) except one bad Apple (-1.8%, see what I did there?).

$PLTR Palantir up over 9% after beating on the top and bottom lines with revenues climbing 93% y/y and earnings nearly tripling.

U.S. government revenue grew 90% from a year ago to $809 million while commercial revenue surged 149%.

The firm also raised guidance with U.S. commercial revenue to be "in excess of" $3.42 billion in 2026, up from prior guidance of $3.22 billion.

CEO Karp: "Put simply, we have now generated more profit in a single quarter than we did in total revenue in the same period the year before.... And the core of our business, in the United States, continues to expand at an unrelenting and breakneck pace."

And the number of large SPX winners (up over 3%) rose to ~80 from just ~20 Friday and ~70 Thursday, though still under the ~120 Tuesday, while large losers (down over 3%) fell to just 10 from ~20 Friday and ~95 Thursday.

And positive volume (percent of volume in stocks higher on the session) was very strong on both the NYSE and Nasdaq coming in at the best since mid-June on the former and the second best (after March 31st) since last August on the Nasdaq.

While speculation on the Nasdaq remained high again but eased back a little with the top three stocks by volume (again all penny stocks) trading ~2.5B shares, down from 3B Friday, but remaining over double the levels we were seeing a couple of weeks ago. Eight were over 100M, down from thirteen.

Some other corporate news from BBG

• Palantir Technologies Inc. raised its sales and income forecasts for the full year after posting second-quarter sales that far exceeded Wall Street’s estimates.
• The Trump administration plans to host artificial-intelligence companies at the White House on Tuesday to discuss a new US framework for conducting voluntary safety tests of AI models, according to people familiar with the matter.
• Boeing Co. received sign off for the 737 Max 7 from the Federal Aviation Administration, ending a drawn-out certification process that was upended by two fatal crashes and quality lapses at the US planemaker.
• Marriott International Inc. said that room growth for 2026 would likely come in at the lower end of earlier guidance, driven by construction delays in the Middle East.
• Michigan health authorities were in touch with Taco Bell’s parent company, Yum! Brands Inc., about a parasitic outbreak in early July, weeks before the company officially alerted consumers.

Note on all charts the colored lines are moving averages (the average price over the lookback period (days on the daily charts, weeks on the weekly charts)): 20 = green 50 = purple 100 = blue 200 = brown

Exception is monthly charts where blue is 10-month moving average and brown is 20-month moving average.

MACD = Moving average convergence/divergence line, a measure of momentum that compares longer term and shorter term momentum to gauge if a move is strengthening or weakening. This is probably my favorite individual indicator (it’s also the favorite of Katie Stockton, a very fine technician).

RSI = Relative Strength Index (basically what it sounds like) = measures the strength of the move comparing gains to losses over the given lookback window (I use the standard 14 periods).

Turning to the charts, the SPX continued its bounce from the lowest close since June 10th on Wednesday finishing just under an all-time closing high. But it moved right through the trendline resistance from the highs. Daily MACD moved more positive, and the RSI is back to 60, so some momentum behind it.

Nasdaq back to its 50-DMA and also its downtrend line from the highs. Its daily MACD and RSI also have flipped more positive, so I’d bet on it clearing that line.

Nasdaq +6.1% the past three sessions, best three days since May 2025, taking it to the downtrend line from the highs.

The Russell 2000 (RUT) made it through its downtrend line from the highs. The daily MACD remains in a “sell longs” reading, but close to flipping, and its RSI is back over 50, so a much improved chart from Friday.

The equal-weighted SPX just under its all-time highs. The daily MACD and RSI tilt positive.

MarketWatch: The equal-weighted S&P 500 ETF $RSP outperformed the Nasdaq-100 $QQQ ETF (which as a side note had its worst July since.... ever) by 7.6% in July, the most on record.

I forgot Friday was month-end, so wanted to go through the monthly charts. They all remain in uptrends with not really anything concerning at this point. These were from the weekend so are true “month ends” (don’t reflect Monday’s action).

Yields eased across the curve

Two-year Treasury yields down for the sixth session in seven to 4.24%, now down 11 basis points from last Thursday’s close, the highest since February of last year, but still over the nearly three year downtrend line which I’ll be giving up on soon.

They are ~59 basis points above the Effective Fed Funds rate (red line), continuing to call for rate hikes.

10-year yields eased back to 4.68%, down four basis points from the highest close since January 2025 Friday.

30-year yields similarly down four basis points to 5.23% from the highest level since 2007.

The first part of our two-part act regarding third quarter Treasury borrowing completed this afternoon with the Treasury giving the borrowing forecast for the quarter raising it to $739 billion, an $68 billion increase from its May projection.

Lower projected cash flows from government operations were the main reason for the higher borrowing need (likely related to tariff refunds).

The more important part (for markets) comes Wednesday morning when specific borrowing amounts by maturity are announced for the next three months as well as a forward looking statement on whether those might change.

As noted in the Week Ahead: With 10-year yields the highest in 18 months and 30-years the highest since 2007, I'm sure Scott Bessent is loathe to add fuel to the fire by increasing auction amounts or tipping a coming increase in long-end supply with the forward looking statement, even as most expect that to come at some point.

The shortfall will therefore likely be filled mostly by increased sales of T-Bills (less than 1 year in maturity).

During the July–September 2026 quarter, Treasury expects to borrow $739 billion in privately-held net marketable debt, assuming an end-of-September cash balance of $950 billion. The borrowing estimate is $68 billion higher than announced in May 2026, primarily due to lower projected net cash flows, partially offset by the higher-than-assumed beginning-of-quarter cash balance.

During the October–December 2026 quarter, Treasury expects to borrow $628 billion in privately-held net marketable debt, assuming an end-of-December cash balance of $850 billion.

Additional financing details relating to Treasury's Quarterly Refunding will be released at 8:30 a.m. on Wednesday, August 5, 2026.

The VIX edged lower now down to 15.9, a two-week low, in its “normal” range post-GFC, consistent w/~0.99% average daily moves in the SPX over the next 30 days.

The VVIX (VIX of the VIX) similarly dropped to 90.8

The current level is consistent with “moderate” daily moves in the VIX over the next 30 days (historically, normal is 80-100, but we’ve been above 90 most of the time since July ‘24). Above 100 is the level flagged by Charlie McElligott as indicating higher stress.

And with the weekend behind us, the 1-day VIX fell to 9.4, the lowest since July 6th and second lowest since June 2nd. The reading is consistent with a move of just 0.59% in the SPX next session.

WTI fell back nearly 7% giving up last week’s gains.

The DXY dollar index (which is fixed weighted with a heavy (57%) vs the euro) was down for a fifth session early (after its worst week since January (when Fed independence was under attack)), before rallying to finish higher and holding its 100-DMA and trendline from the 2026 lows.

The daily MACD as noted Wednesday has flipped to negative while the RSI is under 40. I said Wednesday “still too early to call an end to the uptrend,” but as I said Thursday “a break of those levels would make that call much closer.” Held for now. Clearly at least a consolidation though, and with speculators and CTAs still quite long the dollar, continued declines could really build.

Gold futures (/GC) still not able to extend after crossing the downtrend line from the March highs. As I’ve mentioned for now four weeks “the technicals remain much better than the price action.” Really needs to get over that 50-DMA (purple line).

US copper futures (/HG) continue to move in step with the AI trade reversing from early losses to finish higher edging closer to the downtrend line from the highs. It continues to have “relatively supportive technicals.”

Monthly chart very solid (this one was from today, so ignore the last bar).

US natural gas futures (/NG) continue to edge higher after falling out of their two-week range a week ago. Still have some room before resistance. The daily MACD and RSI are negative but close to flipping more positive.

Bitcoin futures continue to do a lot of nothing, ending at the same levels they were at in early June. As I mentioned three weeks ago, “the daily technicals continue to look better than the price action, so maybe there’s a chance?” So far that hasn’t translated into more than a modest move higher, and the technicals are now tipping negative.

Other stuff

Tier1Alpha sees a similar gamma setup as BofA:

"SPX has shifted back toward neutral gamma territory, leaving us with a highly path-dependent setup from a volatility perspective. In a neutral gamma regime, we expect dealer hedging flows to have a minimal impact on the index at current levels, as positioning is not meaningfully offsides in either direction. However, a large move from here, either higher or lower, would fundamentally change how market makers are forced to respond."

"A move higher into positive gamma would shift dealer flows back toward selling into strength and buying into weakness, which helps suppress volatility. A move lower into negative gamma would force dealers to manage their delta exposure by selling into weakness and buying into strength, reintroducing the conditions for higher volatility."

In that regard, they see support and resistance levels keeping the SPX in its trading range:

"For now, we are not directionally biased either way and will rely on our PV bands as the guide for the week. Currently, our upper band is showing resistance at the 7550 strike, while support has shifted higher to 7300."

"Again, these levels should be very familiar by now, as they remain broadly within the same strike range SPX has been stuck in since the end of April."

Yardeni: So far, so good. We predicted a summer stall in the stock market, with bouts of volatility rather than a correction, and that is how June and July played out. The S&P 500 has gone nowhere since May 14, fluctuating around 7,500, while the market has churned underneath. The rotation of leadership among sectors that we expected has continued. Breadth has improved. Nothing in the past month has changed our view that the index should reach 8,250 by year-end.

The summer stall could last until the start of the fall. On the plus side for investors is Fabulous Earnings Momentum (FEMO). On the negative side for them are ongoing uncertainties about the AI business model, the Middle East war, the persistence of inflation, and the Fed's reaction function under Fed Chair Kevin Warsh. The net result so far has been a flat market with lots of volatility.

Such volatility combined with leverage can be fatal. Leopold Aschenbrenner's $45 billion hedge fund, Situational Awareness, blew up last week. He was forced to sell his entire book of public equities to Citadel after losses on his long positions in the AI trade triggered margin calls. This event undoubtedly contributed to last week's volatility, as did Warsh's lame first press conference; yet the S&P 500 rose 1.0% for the week!

S&P 500 Semiconductors contributed to the week's downside volatility, falling 3.4% (chart). On July 19, we wrote that the S&P 500 Semiconductors stock price index was likely to fall to its 200-day moving average.

A lot over the weekend on whether we’d seen a bottom in the momentum/AI selloff. I had some on this Friday as well, but many think the blow-up in hedge fund Situational Awareness discussed last week and its large, leveraged positions on AI stocks was a factor in the selloff which lifted once Citadel bailed them out (or took advantage of their weakness depending on your perspective).

Despite the bounce Thursday and Friday, July saw the worst monthly performance for the Goldman Sachs High Beta Momentum Basket since November 2000 falling over 24%.

That was the third month of deceleration from April's record 35.2% gain in April, the best month on record, to +19.8% in May, and +3.3% in June.

"Fundamentals have taken a complete back seat in the past six weeks," wrote HSBC's Max Kettner in commentary shared with MarketWatch.

But there are signs that the market has reached an inflection point, according to Mark Hackett, chief market strategist at Nationwide. For example, the one-month average daily percent change for the Goldman Sachs High Beta Momentum Basket surged to its highest level since 2020 in July.

That volatility measure has peaked in the past around important inflection points, including the COVID selloff, the dot-com bubble peak and the bottom of the selloff after the 2008 financial crisis, Hackett pointed out.

BTIG's Jonathan Krinsky had a pretty good July. He entered the month calling for a selloff in semiconductors ahead of July's drawdown, then "called time on the historic momentum crash," just ahead of the fourth-biggest daily gain on record for Goldman's High-Beta Momentum Index (+13.3%, chart) last week behind 10/13/08 (GFC), 4/18/00 (internet bubble), and 4/9/25 (liberation day).

He also was right that the bounce in momentum would come at "the expense of recent winners," i.e, the equal-weight (RSP) S&P 500 index. But while he thought there might be a bounce, he thinks it will be the bear market kind:

"a 20% rally would bring the SOX back to 50 DMA [daily moving average] where we think it likely would fail again, as we still think it eventually tests its 200 DMA," he said.

DB: The rotation out of Tech began on cue two months ago from the top of its long-run trend channel, and in our reading, the rotation back has further to go before Tech is cheap enough again relative to the rest of the market.

DB: MCG & Tech positioning fell sharply from elevated levels to near neutral this week and has bounced slightly higher (62nd percentile), but is in line with earnings growth around 20%, i.e., already implying a sharp slowing from the 52% it is tracking for Q2 despite elevated revisions.

DB: Within Tech, we see the best risk-reward in the hyperscalers, whose relative performance to the S&P 500 is just off the bottom of a 3-year range.

Goldman's Oppenheimer also sees potential alpha in derated Tech shares:

"The reversal in momentum, and the shifts in country and sector leadership are also being reflected in a rise in alpha opportunities across all major regions. This shift in leadership, accelerated by the recent momentum unwind, is leaving opportunities for investors to add alpha."

"For example, the IT sector has continued to enjoy the strongest earnings growth this year and has seen the biggest de-rating, whereas Energy has performed better but seen lower earnings growth (Exhibit 12). The opportunity to selectively find value in growth areas is rising."

BBG: While momentum had its biggest four-day plunge since 2020 (to be followed by its largest one-day gain since then Thursday), the rotation out of momentum has been going on since June 22nd when it went from an over 20% YTD gain to a slight loss on Wednesday.

During that time low volatility has gone from a -25.6% YTD loss to -13.5% before falling back Thursday and Friday.

"Recent momentum weakness looks more like a rotation than a crash or even a correction," said Wai Lee, head of systematic equity research at Allspring Global Investments. "Now the market is rewarding those stocks which are showing better return on the investments, free cash flows and the like."

Momentum exposure remains high among fundamental long-short funds at the 89th percentile of the past five years, but among systematic funds it dropped to the 34th percentile.

"A sharp reversal after such gains is common, and often it's not about any single catalyst as it is fear-of-missing-out giving way to vertigo," said Lewis Grant, senior portfolio manager at Federated Hermes. "Given the sharp drawdown in high momentum names and the valuation of many AI-winners now less stretched, I expect the worst of the rotation is behind us."

In contrast, JPMorgan strategists reckon the rotation has further to run. In a note recommending the quality factor, the quant team led by Khuram Chaudhry cited worsening sentiment and peaking money supply growth. While momentum reversals have been frequent over the past year, "this month felt different," they wrote Friday.

Goldman's Callahan notes that the stock price of Sandisk has completely detached from its 2027 consensus earnings.

Goldman: The most frequently cited measure for US AI investment in 2026 is the approximately $800B in capex by US hyperscalers, but that number ignores investment by private US companies that play a pivotal role in the AI ecosystem, as well as capex from other public US companies; ignores investment from non-US companies; ignores that hyperscaler investment totaled over $150B even prior to the AI boom, suggesting that some current capex is unrelated to AI; and some share of investment is realized outside the US.

We augment the standard hyperscaler capex measures [to account for those deficiencies]. Following these adjustments, we estimate that global AI-related investment will total $1.019T in 2026.

"With most large hyperscalers raising or reiterating capital spending plans in their earnings commentary, the likelihood of upside to 2026-27 consensus for computing and networking chipmakers is growing," Bloomberg Intelligence analysts Kunjan Sobhani and Oscar Hernandez Tejada said in a note.

Although Harnett advises against buying the dip…

BofA's Hartnett: Fed nakedly dovish, so financial conditions to continue to tighten until Fed forced to restore credibility via aggressive hikes (= higher yields into Warsh @ Jackson Hole Aug 28th); we say retreat/rotate from risk assets rather than reload until higher inflation and one of those nasty "higher yields-lower dollar" vigilante events (Chart) forces monetary & fiscal policy U-turns.

… which investors are for now ignoring.

While Hartnett advises investors not reload, that's just what they're doing as "fearless buy-the-dip continues," with $63.7B added to global equities last week per EPFR data, nearly half into the US and half of that into Tech (which has seen the largest 5-week inflows on record).

Despite the worst month since 2008 for the SOX Semiconductor ETF, semi ETFs saw $5.3B in inflows. China has seen the largest 4-weeks ever for inflows while South Korea didn't see an outflow in the 7 days to Wednesday.

DB: Credit spreads and equity performance for Tech have been closely tied.

And Misc

In the special question this week AAII asked "What is your opinion of new Federal Reserve chair Kevin Warsh?"

With the caveat that this is a compilation of responses for a week ending on the FOMC decision day, most (58.5%) said they "want to give him more time" before they voice an opinion. 22.6% said he was "a good pick" while just 13.3% would have preferred "someone else".

WSJ: Money is getting tighter for America's hundreds of thousands of homeowners associations, and they are extending a shorter financial leash to their residents.

Reserve funds essentially act as an HOA's emergency savings, but many funds that were healthy in 2020 have since been depleted by soaring repair costs for items such as roofs.

Tighter budgets are giving HOAs less financial wiggle room to let missed payments slide. There were 6,376 properties with HOA-related foreclosure filings in the first quarter of this year—spanning initial default notices to completed sales. That is up nearly 40% from two years earlier and rising faster than overall mortgage foreclosure rates, according to real-estate analytics firm Atom.

HOAs filed more than 285,000 liens last year, up about 8.8% from a year earlier, according to Benutech.

Wrap-up

As I wrote Sunday:

As mentioned in the Markets Updates this week, we saw the “on again, off again” nature of the AI-trade, which spent much of July “off” (leading to the worst month for one broad semiconductor index since 2022 as noted in the Friday Markets Update), flip back to “on again” Thursday and Friday.

I had mentioned all month that “ we have seen pullbacks several times previously in the AI trade over the past year, and they have all resolved relatively quickly to the upside. It would be a meaningful change in character if that did not happen this time as well,” and last week said while we had seen one of the sharpest pullbacks in the trade to date, it certainly wasn’t unprecedented (see DB’s note in the Flows section), and the momentum/Tech may be turning back up “on schedule. ”

Given the weight of the components of that trade (semiconductors are 19% of the SPX by market cap, with Tech over a third in total) plus the leverage employed, (as noted by Tier1Alpha also in the Flows section) it will make a big difference in where the market cap indices go.

Of course, there are many other ways to play the market beyond buying the SPX and throughout July we saw broad strength which though seemed to fizzle out the last two days just as AI saw a resurgence. Hopefully we are not returning to the “either/or” market we saw at times earlier this year, but it all remains to be seen.

As mentioned Friday and in the Flows section, the deleveraging we have seen puts us in a much better position from a positioning standpoint than we were coming into the month, with BofA flipping to a net positive base case for the upcoming week, and DB becoming more constructive as well (in addition to JPM, Goldman, etc., per posts this week and several that will be in the Monday note (be sure to check the “Other Stuff” area tomorrow).

One thing we will need to keep an eye on is long-end yields. As I mentioned Wednesday “until long-end yields stabilize, it will keep pressure on the ‘elsewhere’ stocks.” Hopefully we see buyers come in next week to at least stabilize rates.

And wouldn’t you know it, but we ticked just about every box. The AI trade (after some early weakness) continued but we also got many of the “elsewhere” stocks participating as well, helped by yields stabilizing, which pushes us further away from systematic sell levels.

The one quibble is things might have been too good as a 1.5% move is not going to help systematics re-engage. That said, as noted in the Week Ahead, our most volatility sensitive systematic, vol-control, already de-risked as DB noted, so that is less concerning that it would be a couple of weeks ago.

So, as I said wrapped up Sunday:

I think I’m a little more constructive this week in large part due to the cleaner positioning as well as still robust earnings growth with DB notes is not fully reflected in equity prices. It seems investors are back to being a little more comfortable with AI/Tech cash flows coming around post AI-buildout, and discretionary buybacks are returning, although retail flows remain subdued.

While gamma looks to start the week relatively low, that means there is room for larger moves in both directions, and a deal with Iran as anticipated by President Trump, if it happens, may mean that large move is to the upside.

The Day Ahead

As noted in the Week Ahead, this week is packed with US economic data. Tuesday brings us June JOLTS, factory orders, and trade balance (no ADP weekly though with the monthly report Wednesday).

In terms of Fed speakers, nobody on the calendar, just hawkish Kansas City Fed President Schmid is on the calendar (although late (8.15pm)). I’d imagine he’ll say like Musalem over the weekend he would have voted for a hike if he was on the FOMC this year.

Q2 earnings season continues with 51 SPX components reporting Tuesday with nine >$100bn market cap (AMD, CAT, MRK, ANET, AMGN, MCD, GILD, BKNG, PFE in order of earnings weight).

Ex-US a light day with highlights South Korea CPI, Canada trade balance.