June ended on a genuinely split verdict — a fourth straight winning month for the Dow, a losing month for the S&P and Nasdaq, and a bond market still deciding how much it trusts the Fed. As the market finds its way, our technical gauges still remain focused, disciplined and invested.
On July 30, the Federal Reserve voted to keep the federal funds rate target at 3.5%-3.75%. The vote was 9-3, signaling a more hawkish stance compared with the last voting result of 12-0. The three dissenters – Beth Hammack, Neel Kashkari, and Lorie Logan – preferred a 25 bp rate increase.
The Final Score
The S&P 500 went up by 1.06% on the week to close at 7489.72, almost recovered to the value a month ago (-0.06%). The Nasdaq Composite also showed signs of recovering, going up by 1.6% to close at 25373.85, while still down 3.2% relative to its previous month.
Fed’s decision. The 10-year and 30-year Treasury yields rose sharply because of continuing inflation fears, while short-term yields fell as unchanged Fed rates lowered expectations of near-term rate hikes. Investors came away from Chair Warsh's press conference with real doubts about his ability to get inflation back to target, and bond buyers responded the way skeptical buyers always do — by demanding a bigger discount. According to Fed Chair Warsh, “Prices reacted in real time to incoming information, and the reduction in forward guidance may have been a factor. Market participants are learning to play the ball, not the referee—and market prices will continue to respond in the direction and magnitude they see fit. This is, in my view, a change for the better—and we are just getting started.”
Here's the twist: while the AI trade sorted itself into winners and losers, the other 493 stocks in the index quietly had a good month. The equal-weighted S&P 500 — which treats Apple and a small-cap industrial the same at roughly 0.2% apiece, rather than letting a handful of mega-caps dominate the average — posted a July gain even as the cap-weighted index barely budged and the Nasdaq outright, beating it by roughly 4.2 percentage points for the month. That's real breadth: money finding buyers well beyond the handful of names making headlines, evidence the broader economy and broader market are still finding takers even while the marquee AI names sort out who's actually earning their premium.
The Treasury yield curve steepened in response to the Fed's Decision
Economic Growth Expected to Slow Down – The advance estimate showed that real U.S. GDP growth of Q2 is 1.5%, down from 2.1% in Q1. The contributors to the growth of real GDP in Q2 were increases in consumer spending, investment, and exports, partly offset by a decrease in government spending and an increase in imports.
Middle East Tensions and Oil Prices – Developments involving the U.S. and Iran remained a major source of market uncertainty. A temporary pause in hostilities initially pushed oil prices lower, but renewed supply concerns later triggered oil prices to rise again. Oil prices ended the week up 1.85%.
PCE Inflation Moderates but Remains Elevated – The year-to-year PCE change as of June 2026 was released as 3.7%, lower than the previous release of 4.1%. Personal income increased 0.2% during the month, while consumer spending rose 0.3%. The moderation in headline inflation was encouraging, but both headline and core inflation remained well above the Fed’s 2% target.
Labor Market Remains Stable – Initial jobless claims increased slightly to 197k, below expectations. Continuing jobless claims declined slightly to approximately 1.78 million. The data suggested relatively stable employment status, reducing the urgency for the Fed to lower interest rates.
Consumer Confidence Sends Mixed Signals – The CB Consumer Confidence Index declined from 92.2 in June to 90.8 in July. However, the Michigan Consumer Sentiment Index rose from 49.5 to 55.2. One-year inflation expectations declined from 4.6% to 4.2%, while longer-term expectations remained unchanged at 3.3%. Turns out consumers remained less optimistic about current business conditions and the labor market, even though some measures of sentiment had improved.
“We have always been a resilient nation and have overcome significant adversity in the past because we faced our challenges and dealt with them properly. Problems don’t age well. And the consequences of not dealing with this properly range from bad to catastrophic.”
— Chairman and Chief Executive Officer, JPMorganChase, Jamie Dimon, April 2025
Perspectives by Affinity Team
From Frenzy to Fundamentals: A Memory Chip Market Reset
“It’s not what you buy, it’s what you pay that counts.”
—Howard Marks
Global technology stocks, particularly memory and storage stocks, have experienced a sharp reversal over the past several weeks. As of July 29, Micron dropped around 40% from its June peak, SK Hynix in South Korea dropped over 50%, and Samsung dropped around 40%. The sell-off has spread worldwide, pouring cold water on the overheated memory chip trading rally.
South Korea was one of the most shocked markets. KOSPI has plunged more than 33%, which is already more than the 1997 IMF Crisis and the October 2008 Global Financial Crisis. Although the high level of leverage and the high market share of Samsung and SK Hynix in KOSPI contribute to this huge collapse, the underlying AI doubts are also the elephant in the room. Driven by AI’s enormous demand for memory, the memory market has been booming for a long time. Seems like the huge decline might suggest that the fundamental outlook for AI has suddenly deteriorated. However, the evidence points to a different conclusion. The sell-off appears less like the collapse of the AI investment cycle and more like a necessary cooling.
Overheated Market
The AI rally has been occurring for months. Major technology companies were committing unprecedented amounts of capital to data centers, advanced chips, networking equipment, and even energy (because of the common belief that AI requires huge power consumption). A collective $630 billion in spending in 2026 was expected for major technology companies such as Amazon, Microsoft, Alphabet, and Meta. This expected spending is more than four times their combined 2023 spending and equivalent to roughly 2.2% of U.S. GDP. Large portions of that money were directed toward AI infrastructure.
High spending brings visible winners to the stage. Memory, as the foundation of AI computing, is one of the biggest beneficiaries. SK Hynix, Samsung, and Micron emerged as the leading suppliers of memory.
As company after company raised forecasts, the market began to treat AI investment as a durable – at least multiyear – expansion rather than a normal technology cycle. Strong earnings supported higher estimates, which supported higher valuations, leading to huge momentum all over the market. Nasdaq surged more than 20% in two months starting from April. Micron rose about 3 times from April to its June peak. Turns out that the market’s assumption was no longer simply that AI would generate significant economic value. Stock prices increasingly reflected several more demanding expectations: hyperscalers would continue increasing capital expenditures, and AI would begin producing revenue that is sufficient to cover the huge spending.
The high stock price was supported by the high expectation of future revenue, and high future revenue was supported by high spending. However, what if our expectations are already too high, requiring execution to be super perfect?
Strong Performance, but not Strong Enough to Meet Expectations
Although many companies reported strong earnings, expectations are even higher, and not all companies can meet them. SK Hynix reported second-quarter revenue of 79.3 trillion won, a 257% year-to-year increase, but still missed market expectations of 84 trillion won. Samsung Electronics' most recent earnings also shifted from a huge surprise to slightly below expectations. We cannot say those companies performed poorly simply because they underperformed expectations. However, the gap between reality and expectations must be kept in mind as we reconsider.
Similar concerns also appear in the United States. Meta’s most recent earnings report on July 29 shows a 91% collapse in cash flow to $784 million, partially due to its aggressive investment in AI. Combined with a -14% EPS surprise, Meta fell nearly 10% following the report. Investors are concerned about rapidly rising capital expenditure.
No matter how ideal it was, now we have to take a look at the elephant in the room, or, in the server room of AI.
What the Sell-Off is Really Saying
We cannot conclude that the AI market is collapsing simply from this dramatic decline in the memory market. Instead, it is becoming more selective about where the future value will accrue.
During the first stage of the AI rally, investors broadly rewarded companies that increased exposure to AI. Chips, data centers, or even just an announcement related to AI were treated as evidence of future growth. The recent sell-off suggests that this approach is changing.
Investors are getting rational about the future of AI. Investing in AI is no longer 100% good news. The next stage will likely require companies to demonstrate more evidence about their profitability in AI. For example, revenue growth that keeps pace with capital expenditures, or a credible cycle from AI adoption to future profit-generating. Recent breakthroughs in saving resources used by AI computing also remind investors to think about whether AI really needs that much infrastructure, including memory, electricity, and space.
This change has important implications for all companies related to AI. It will eventually be impossible for all companies to share the cake. Entering AI is not automatically profitable. Companies must show strong evidence of winning to persuade investors to support their high P/E ratios.
A Reset, not necessarily a collapse
The underlying demand for advanced memory has not disappeared. Samsung expects chip shortages to persist through 2028, SK Hynix says major customers continue to request more supply, and Microsoft reported 43% Azure growth and provided evidence that its AI investments were translating into cloud revenue. We are still confident about the strong growth of the AI infrastructure cycle.
The major difference is that the market is no longer willing to treat every increase in AI spending as automatically positive news. Capital expenditure will increasingly be judged by the revenue, margins, and cash flow it produces. Earnings are compared against expectations, but not against prior-year results.
The recent memory market decline is more like a reset. The market is getting rid of blind betting. Overheating needs to be cooled down before it grows from a bubble into a huge bomb.
AI may still transform computing, business, productivity, and even more industries. Demand for advanced chips can remain strong for years. However, we still need to be rational to make sure our purchase is worth the money.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.
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WEEK AHEAD
Aug 3-7, 2026
Weekly Market Commentary:
The Fed's Pitch Meeting Didn't Land
The Final Score
The Treasury yield curve steepened in response to the Fed's Decision
Perspectives by Affinity Team
From Frenzy to Fundamentals: A Memory Chip Market Reset
—Howard Marks
Overheated Market
Strong Performance, but not Strong Enough to Meet Expectations
What the Sell-Off is Really Saying
A Reset, not necessarily a collapse
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.