Markets Update - 7/21/26
A look at what happened today impacting US equity, Treasury, and selected commodity markets, and what to watch for tomorrow
Note: I will be competing in the IBJJF Orlando Open Thursday, so no Market Updates Wed - Fri.
Quick Summary:
US equity indices started the Tuesday session trading higher, again led by semiconductors, even as the continuing hostilities in the Mid-East saw crude continuing to climb.
But unlike Monday indices were able to hold their gains into the close, led by the Russell 2000 (after a late surge) +1.5%. The tech-heavy Nasdaq Composite was +1.3%, the S&P 500 +0.9%, and the Dow Jones Industrial Average +0.7%, as all four indices snapped three-day losing streaks.
Technology was the clear leader, with the PHLX Semiconductor Index gaining +5.2%, the most in a month, as investors continued buying into last week’s sharp pullback in AI and chip names. Memory stocks were especially strong, and the broader rebound was helped by the view that recent weakness has been more of a positioning reset than a break in the AI investment theme.
The advance was not just a tech story, although the equal-weight S&P 500 rose just +0.2%. Still, just two of 11 S&P 500 sectors finished in the red, although only Technology, Energy and Health Care gained more than 0.35%.
Oil prices rose again as the US-Iran conflict continued on, with President Trump again threatening strikes on Iranian nuclear sites if Iran does not engage “in a meaningful way.”
“Any site where they’re even thinking about nuclear, we’ll be hitting it very, very powerfully,” Trump said in the Oval Office, alongside President Joseph Aoun of Lebanon. WTI crude climbed despite reports of renewed mediation efforts, while Treasury yields also moved higher, pressuring several sectors.
Earnings also remained in focus, with several company-specific reactions across industrials, autos, health care, and energy services. The reporting period remains off to a strong start overall, but investors continue to punish companies that fail to clear a high bar.
Things will pick up Wednesday with 29 SPX components reporting including Tesla and Alphabet kicking off megacap tech results.
Some market commentary:
“We’re in a period of heightened market anxiety, and the hyperscalers haven’t been the darlings of this trade,” said Brock Campbell, head of research at BNY Investments Newton. “The key debate is on the duration and magnitude of AI spending.”
“At some point, earnings are being questioned so much that you can’t put as a high of a multiple” on these stocks, said Todd Ahlsten, chief investment officer at Parnassus Investments. “There’s going to be a lot more focus on cloud gross margins, pricing, what kind of AI revenue is being generated per dollar of compute.”
“Investors are getting to the point where they’re uncomfortable with how much money is being spent and they’re worried about a bubble,” said Jake Seltz, portfolio manager at Allspring Global Investments. “Ultimately, we need to see a re-acceleration in revenue.”
“It hasn’t been uncommon to see some of these stocks sell off over a period of weeks or months and then come back,” he said. “I would use any weakness as an opportunity to add to positions. The cycle isn’t over yet. I think there are a couple more years of great returns, but there will be volatility that will spook the market from time to time.”“The next test is no longer whether AI demand exists, but whether pricing, margins and cash flow can justify the capex bill,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers. “If they can, the rebound should broaden. Otherwise, volatility remains the regime.”
The question for investors is whether now is the time to sell chips and rotate toward hyperscalers, according to Alexandre Drabowicz, chief investment officer at Indosuez Wealth Management in Paris. “Our view is that one needs to be invested in both,” Drabowicz said. “Alphabet’s earnings this week will be a real bellwether for the industry and its capacity to monetize AI. We believe the market underestimates how fast these companies will be able to monetize.”
“The burden of proof has changed. Investors are no longer asking whether companies can withstand the uncertainty,” Bret Kenwell at eToro said. “They want growth and guidance strong enough to justify elevated valuations.”
“The next two weeks will be a defining stretch for earnings, and not just for tech,” said Kenwell. “The broader message is already clear: companies that fail to clear Wall Street’s elevated bar are being punished.”“That marks a sharp contrast with last quarter, when uncertainty had lowered expectations and investors were primarily looking for reassurance that geopolitical disruption had not derailed Corporate America,” he added. “Today, after the market’s run to record highs, good results are not always good enough.”
Investors are waiting to see how earnings shake out before they make any moves, according to Sam Stovall, chief investment strategist at CFRA Research. “Investors are basically saying, ‘If we are now starting to be on the leeward side of this earnings mountain, the best is likely behind us,’” he said. “They’re taking a wait-and-see attitude because they want to hear what Nvidia, AMD and all of the other companies say about this quarter and what their guidance is.”
“While volatility is likely to remain high given the elevated concentration still present in parts of the market, the correction has been both deep and lengthy enough to alleviate some valuation concerns,” said Santiago Mateo Yanguas, head of equity at CaixaBank AM.
“The recent correction appears more consistent with a healthy reset following a parabolic advance than a fundamental breakdown in the AI investment theme,” said Adam Turnquist at LPL Financial.
“The S&P 500 has effectively traded sideways for the past two months as investors weigh exceptional earnings expectations against signs of rising speculation. Whether this proves a healthy reset that allows the AI rally to extend, or the start of a more damaging unwind, will depend heavily on the reporting season.” — Skylar Montgomery Koning, macro strategist.
“We see room for global stocks to move higher amid strong profit growth,” said Mark Haefele at UBS Global Wealth Management. “The wide gaps between individual stock performance and ongoing risks related to geopolitics and inflation, however, mean that investors should ensure diversified exposure.”
“Earnings will be good for the memory stocks for sure and the semiconductors as well, so investors are just starting to position for that,” said James Ragan, co-CIO and director of investment management and research at D.A. Davidson.
“We’re at the point where the market move today is driven by earnings expectations more than anything, because investors seem to continue to shrug off the headwinds that are created by the Iran conflict and higher oil prices again,” he told MarketWatch via phone on Tuesday.
In today’s Markets Update:
A deeper look at Tuesday’s stock and sector breakdown, including the semiconductor-led rebound, Technology leadership, broader sector participation, but still a weak equal-weighted performance.
A closer look at key company movers and corporate developments.
Updated 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, July vs YTD sector performance, and Nasdaq speculative activity.
A look at the rates and Fed backdrop, including Treasury yields, Fed hike expectations, and Yardeni on the rate-hike outlook.
A look at volatility and market structure, including VIX, VVIX, 1-day VIX, and Bloomberg’s catalyst calendar.
A review of cross-asset trends, including WTI crude, the dollar, gold, copper, natural gas, and bitcoin.
A look at UBS on AI and semiconductor momentum as well as their new SPX price target, Goldman on AI-related debt issuance, Bloomberg on Oracle credit risk, Bloomberg on dispersion and implied correlations, and Goldman on Q2 earnings growth and revision breadth.
A wrap-up on the AI trade, the technical backdrop, the Iran conflict, and the broader market setup.
A look ahead to Wednesday’s calendar, including US economic data, Treasury auctions, SPX earnings, and ex-US highlights.
