CPI Cools, AI Cracks, and Iran Reignites the Oil Trade

U.S. equities posted their first losing week in three, and only the third losing week since March. The S&P 500 fell -1.55% to 7,475.69 as an intensifying AI trade sell-off collided with a re-escalating Iran conflict. The Nasdaq bore the brunt, dropping -2.90% to 25,520.24: its worst week in months. The Dow slid -0.93% to 52,146.42, and the Russell 2000 was surprisingly resilient at -0.52% to 2,962.22, which keeps it up an eye-catching +19.35% YTD, well ahead of every large-cap peer.

The week's biggest single event arrived Tuesday morning with the June CPI report. Headline inflation FELL -0.4% MoM: the largest monthly decline since April 2020: pulling the annual rate down to 3.5% YoY from 4.2% in May. Consensus had expected +3.8%. Core CPI was flat MoM at 2.6% YoY (vs. +2.9% expected). Wednesday's June PPI also unexpectedly declined. The soft inflation duo initially sent stocks and bonds higher: the 10-year yield fell to 4.55%, its first weekly drop in three weeks, and rate hike odds for July dropped to essentially zero.

Iran Reignites, Ceasefire Cancelled

Hostilities that had reignited the prior week (when Trump declared the ceasefire "over" at the NATO summit on July 8) continued to escalate through the week. The U.S. Central Command carried out dozens of strikes on Iran to degrade its ability to attack vessels in the strait, and Iran responded by targeting U.S. bases in Kuwait and Bahrain. The U.S. also revoked its Iranian-oil waiver effective July 17. Brent crude surged +4.6% Friday alone and finished the week up +16%: its best week since 2022. WTI closed at $82.49 and Brent at $88.10, both the highest since mid-June. The energy shock reawakened rate-hike bets: the CME FedWatch tool showed 68.8% odds of a September hike as of Wednesday, and 85.3% odds by December.

AI Trade Cracks, Netflix Disappoints

Nvidia was the heaviest weight on markets Friday as chip stocks broadly retreated, driving the Philadelphia Semiconductor Index into bear-market territory: down 20% from its record. Chinese AI startup Moonshot unveiled its Kimi K3 model Thursday, which the company said narrows the gap with U.S. leaders; the news accelerated the sector rotation. Q2 earnings season kicked off with a strong showing from big banks (JPMorgan CEO Jamie Dimon: "It's getting close to as good as it gets"), but attention quickly turned to Thursday's tech reports. TSMC delivered strong AI demand commentary and beat estimates. Netflix, however, projected slower revenue growth and slipped over 11% Thursday, dragging fuboTV (-5.1%) and other streaming names down with it. Earlier in the week, IBM plunged -25.2% on Tuesday after a rare pre-announcement of soft Q2 revenue: the worst single-session decline in IBM's history (worse than Black Monday 1987). The S&P Q2 EPS growth is now tracking to +23.3% per FactSet: which would be the second-best rate in years.

Tesla, Alphabet Earnings and Pre-FOMC Positioning

Attention shifts to Q2 earnings megacaps and pre-FOMC positioning. The FOMC meets July 28-29 the following week: markets are watching whether the June CPI cool-down survives contact with re-escalating Iran-driven oil prices. Rate hike odds surged to 68.8% by September and 85.3% by December after Trump's ceasefire cancellation. This week's Tesla, Alphabet, and IBM earnings will test whether Big Tech can steady the AI trade after Nvidia's Friday drag.

Mon Jul 20: Tesla Q2 Earnings

Tesla reports after the close. Delivery numbers were weak in Q2, so investors will focus on auto margins, energy business growth, and any updates on robotaxi timeline and full self-driving progress. Musk's commentary on political drama could also move the stock.

Tue Jul 21: Existing Home Sales & Verizon

June existing home sales at 10:00 AM ET. With mortgage rates having eased from May peaks alongside Treasury yields, housing may show early signs of stabilizing. Verizon earnings before the open: telecom capex and consumer subscription trends in focus.

Wed Jul 22: Boeing & Chipotle Earnings

Boeing reports Q2 results: watch for updates on the China 200-plane deal execution and 737 MAX production ramp. Chipotle earnings after close: fast-casual consumer spending signal amid ongoing inflation concerns.

Thu Jul 23: Alphabet Earnings & Flash PMIs

The week's heaviest day. Alphabet reports Q2 earnings after the close: Google Cloud growth and AI capex commentary are critical for the entire tech sector. Flash PMIs (S&P Global) at 9:45 AM release July's first business-sentiment read. Jobless claims at 8:30 AM.

With WTI at $82.49, the 10-year at 4.55%, and gold below $4,000 for the first time since the Iran war began, cross-asset signals are mixed. The S&P 500 at 7,475.69 remains within 2% of its all-time high. Bond markets are pricing significant Iran-driven inflation risk, but soft June CPI provides Warsh cover to hold. Watch for Alphabet Thursday: a beat could stabilize the AI trade; a miss extends the Nvidia-led drawdown.