U.S. equity markets are poised for a positive start to the new week, with investors returning after the Independence Day holiday and looking to make up for gains missed last Friday. This week, a major South Korean memory chipmaker will once again test the strength of the artificial intelligence trade. Potential increases in energy supply are weighing on oil prices, potentially easing inflationary pressures, while investors await the onset of a crucial earnings season for the AI sector.
As of the latest data, Dow Jones futures are down 0.20%, S&P 500 futures are up 0.32%, and Nasdaq futures have gained 1.08%.
Most European stock indices are higher in early trading, with momentum in semiconductor shares waning but other sectors advancing. The Stoxx Europe 600 index is hovering near record highs. London's FTSE 100 is up 0.1%, the Paris CAC 40 has risen 0.2%, Germany's DAX is flat with tech companies showing mixed performance, Italy's FTSE MIB is up 0.4%, and Spain's IBEX 35 is down 0.3%.
Asian markets were mixed. South Korea's hot stock market cooled slightly last week but remains up 90% year-to-date, driven by AI demand and tight supply pushing up chip prices. On Monday, South Korea's KOSPI index fell 0.5%, while Japan's Nikkei index was flat.
Last week, major U.S. benchmark indices gained 1.8%, and the European STOXX index rose 2.7%. As energy prices cooled, traders scaled back bets on interest rate hikes, though parts of the tech sector, particularly chipmakers, remained under pressure.
Monitoring Sector Rotation
With a light economic data calendar this week and the U.S. earnings season not yet in full swing, the importance of these events is amplified. Meanwhile, with global equity markets showing uneven performance recently, investors are questioning whether the AI-driven rally of the past quarter has gone too far.
Roberto Scholtes, Chief Strategist at Singular Bank, stated, "Speculative positioning in semiconductors and other hot tech themes is likely to continue being unwound. The key question is whether this will trigger a rotation into lagging sectors or spark a broader correction."
Global Chip Stock Volatility Hits Highest Level Since 2020
Momentum in semiconductor stocks is fading. Chipmakers have been the leading force in the AI rally this year. Morgan Stanley strategists noted that as investors pull back from some of this year's biggest tech trades, U.S. stocks will struggle to reach new highs. The team led by Michael Wilson stated that momentum in semiconductor shares is waning as investors rotate into lagging sectors, including AI hyperscale cloud providers.
Francisco Simon, Head of European Strategy at Santander Asset Management, said, "The upcoming earnings season may need to rebuild market confidence in this area. That said, the medium-term trend remains intact."
Jefferies' Chief European Economist, Mohit Kumar, commented, "The decline in oil prices should support growth-sensitive sectors and countries that have underperformed over the past three months." He added, "While we remain bullish on U.S. tech stocks, we have increased exposure to Asian markets and growth-sensitive sectors in recent weeks."
Earnings Season Approaches
In the upcoming earnings season, investors will closely monitor the performance of AI-related companies, especially against a backdrop of market concerns about an AI bubble.
Key U.S. earnings this week include Delta Air Lines (ASX: DAL) and PepsiCo (ASX: PEP). However, Samsung Electronics will be in focus on Tuesday as the chipmaker faces close scrutiny, with analysts expecting its profits to surge 18-fold. The stock is up 165% year-to-date. Days later, SK Hynix is set for a $29 billion U.S. listing.
According to regulatory filings, South Korean chipmaker SK Hynix will launch its U.S. listing on Monday, aiming to raise about $28 billion. This will further test the strength of the AI wave.
Hormuz Strait Traffic Continues Recovery
Oil prices are falling as traffic through the Strait of Hormuz continues to recover and OPEC+ signals a potential increase in supply. Brent crude is down about 0.7% to $71.65 per barrel.
Vessels are transiting the Strait of Hormuz, despite no new progress in fraught U.S.-Iran peace talks. Reports indicate 160 vessels passed through from last Monday to Saturday. Concurrently, OPEC+ has agreed to further raise its production target by 188,000 barrels per day starting in August.
Soojin Kim of MUFG stated, "The Brent and Dubai crude forward curves remain in contango, reflecting ample near-term supply; Gulf producers are expected to further cut official selling prices to maintain competitiveness." Contango refers to a market structure where near-month futures prices are lower than longer-dated contracts. Analysts note that Saudi exports have rebounded sharply to near pre-war levels, and the UAE is also rapidly restoring flows, making the physical market more relaxed.
Santander's Simon noted that with few major data points this week, a key variable for U.S. Treasury moves will be oil prices. Simon said, "Specifically, whether the recent downward trend in oil prices persists and whether the news flow around energy markets continues to stabilize." He added, "Central bank communication could also drive market volatility, though in the absence of major new developments, we do not expect a significant shift in policy tone."
U.S. Treasuries Rally Across the Curve
The dollar and U.S. Treasury yields showed limited movement, still digesting the impact of last week's jobs data. A broad rally in U.S. Treasuries pushed the 10-year yield down 2 basis points to 4.46%. Tradeweb data shows the 2-year yield fell 0.4 basis points to 4.126%.
Eurozone government bond yields edged lower, following U.S. Treasury moves. Tradeweb data indicates the 10-year German bund yield fell 0.8 basis points to 2.923%.
Analysts at Metzler noted in a report, "The eurozone is relatively short of new drivers this week." They stated that German factory orders released this morning, industrial production on Tuesday, foreign trade data on Thursday, along with eurozone producer prices and retail sales, "should provide valuable clues for second-quarter GDP growth expectations."
Dollar Regains Strength
In the currency market, the dollar index, which fell after last Thursday's weaker-than-expected U.S. June non-farm payrolls report, has since edged up 0.1% to 101.04. Previously, scaled-back U.S. rate hike expectations weighed on the dollar. The reassessment of rate expectations stemmed from last Thursday's weaker U.S. jobs data and Fed Governor Kevin Warsh's comments last Wednesday that inflation risks have eased.
However, LSEG data shows markets still anticipate a Fed rate hike by year-end. Attention now turns to the Fed meeting minutes released on Wednesday for further clues on the policy path.
Yen Weakens
The yen is weakening against all major currencies as traders test the resolve of Japanese authorities to intervene. Goldman Sachs has joined a growing camp of investors and strategists bearish on the yen, which is trading near its lowest levels since 1986. Goldman raised its 12-month forecast for the dollar-yen pair to 165 from 155. Strategist Karen Reichgott Fishman noted the revision reflects Japan's fiscal pressures, expectations that U.S. Treasury yields will stay higher for longer, and that the Bank of Japan will only raise rates gradually.
Bitcoin remains firm after hitting a two-week high overnight. LSEG data shows Bitcoin is up 0.5% to $63,026, having reached an overnight high of $63,926. Monte Safieddine of Capital.com noted in a report that last week's weaker-than-expected U.S. jobs report prompted markets to dial back Fed hike expectations, providing some relief for liquidity-sensitive assets, including cryptocurrencies.
Gold futures are rising after the metal posted its first weekly gain since May. Weak U.S. jobs data and falling oil prices have reduced expectations for Fed rate hikes. Despite easing concerns about U.S. economic inflation pressures, Saxo Bank analysts stated, "Short-dated U.S. bond yields still show a risk of a rate hike later this year. Further cooling of these expectations is needed to support further gold gains. For now, gold continues to consolidate."
Key Events This Week
U.S. President Trump will attend the NATO meeting in Turkey this week. Data-wise, the U.S. ISM Services survey is due later Monday. On Monday, several central bank officials, including Fed Governor Christopher Waller, will speak at an ECB conference. ECB President Christine Lagarde will also speak in Paris. The latest Fed meeting minutes will be released on Wednesday.
Frederic Neumann, Chief Asia Economist at HSBC, said, "Even if the Fed stays on hold, manufacturing remains under pressure, El Niño could push up food costs, and weaker local currencies are keeping monetary policy officials in a defensive stance." He expects rate hikes this month in New Zealand and South Korea, with Indonesia also a possibility.
Wall Street's Outlook for the 'Second Half' of 2026: Bullish Consensus Holds, But 'AI Solo' Shifts to Broader Gains
After a first half marked by geopolitical turmoil, rollercoaster oil prices, and volatile rate expectations, Wall Street is entering the second half of 2026 with more resolute confidence. Despite wide divergence in year-end S&P 500 targets among major institutions—ranging from a pessimistic 7,000 to an optimistic 8,250, a spread of over 1,200 points—the overall tone remains bullish.
The core consensus is: the U.S. bull market is not over, but the primary profit-making theme may shift from the overcrowded chip and AI "shovel" plays to broader sectors like industrials, healthcare, materials, and small-to-mid-cap stocks.
Bank of America Warns: Speculative Sentiment Extreme, U.S. Stocks Poised for a Sharp 'Correction'
The S&P 500 just posted its best quarterly performance since 2020 and is up about 9% year-to-date. However, Bank of America believes the good times may be nearing an end, and the market is likely to trend lower from here. BofA analysts reiterated their year-end 2026 target for the benchmark index at 7,100 points, implying a roughly 5% decline from last week's close.
BofA noted, "Our monitored bear market signals show speculative sentiment reaching extremes, with high-valuation stocks showing significant gap-ups. Historically, this scenario has often preceded a 'violent correction' in valuations." The bank further stated that compared to historical trends, the ratio of free cash flow to net profit for current S&P 500 constituent companies is low, primarily due to so-called "hyperscale" companies seeing free cash flow shrink sharply as they ramp up capital expenditures in the AI wave, eroding overall earnings quality.
Stocks in Focus
The iShares Semiconductor ETF (SOXX) is up over 2.5% in pre-market trading, rebounding after two consecutive days of declines totaling over 11%. Intel (ASX: INTC) shares are up 2.5%, Advanced Micro Devices (ASX: AMD) is up 3%, and Broadcom (ASX: AVGO) has gained nearly 2%.
Comcast (ASX: CMCSA) shares rose 0.5% after its UK subsidiary, Sky, announced the acquisition of rival broadcaster ITV's television business. Comcast currently owns Sky but has recently announced plans to spin off its media assets.
ASML Holding NV (ASX: ASML) is up 4% pre-market. Bernstein raised its price target by over 30% to $2,300. The firm's analysts stated they are raising profit and price expectations due to unprecedented expansion in logic chip and DRAM capacity driven by artificial intelligence.
Bank of America upgraded T-Mobile US (ASX: TMUS) from "Neutral" to "Buy," sending the stock up over 1.5%. BofA said current market pessimism in the telecom sector has peaked; the stock has fallen over 20% from its 2026 February high, representing excessive downside.
Bernstein downgraded Datadog (ASX: DDOG) from "Outperform" to "Market Perform," causing the stock to drop over 2%. Analysts said the company could still benefit from the AI wave long-term but are cautious about the upcoming earnings report due to a high year-ago comparison base and potential peaking of non-AI business growth.
Morgan Stanley raised price targets for Lam Research (ASX: LRCX), Applied Materials (ASX: AMAT), and KLA-Tencor (ASX: KLAC). All three are among the top pre-market gainers in the S&P 500. Lam Research leads the S&P 500, up over 4%; Applied Materials and KLA-Tencor are both up nearly 4%.
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