Market Context
The holiday-shortened week of Monday 29 June to Thursday 2 July 2026, with markets closed Friday 3 July for Independence Day, marked a clear turning point in market leadership. The first half of 2026 closed as the strongest quarter since 2020, yet the week's defining story was the money leaving the sectors that produced those gains. Semiconductors, which surged more than 80% in the first half, sold off for consecutive sessions as investors took profits and began what several strategists called a genuine revaluation of the AI trade. In their place, the Dow Jones Industrial Average powered to repeated record highs on strength in industrials, financials, healthcare, and consumer names. The week closed on Thursday with a soft June jobs report that broke a three-month hot streak, cooling rate-hike expectations and reinforcing the case for the Fed to hold. The Dow closed at a record 52,844, the S&P 500 finished at 7,483.24, and the Nasdaq ended at 25,832.67.
Key Signals
The June jobs report came in soft and reset the rate conversation. The economy added just 57,000 jobs in June, well below the roughly 113,000 expected, marking the softest reading since February's negative print. Prior months were revised lower, with May cut to 129,000 from 172,000 and April to 148,000 from 179,000. The unemployment rate ticked down to 4.2%, and wage gains held at 3.5% annually. Following the report, the probability of a rate hike at the Fed's July meeting dropped from around 29% to about 18%. The cooler reading brought the employment side of the Fed's mandate back into focus.
The AI trade underwent a genuine revaluation, not just a rotation. Semiconductors fell for consecutive sessions, with the VanEck Semiconductor ETF dropping 4.5% on Thursday alone, led by an 11.5% slide in KLA and a 13.6% decline in Teradyne. Micron tumbled more than 10% on Wednesday and fell further on Thursday, though it remains up over 260% year-to-date. As one strategist put it, this was a rotation out of a sector that had been red hot, but also a partial revaluation of the AI trade in itself. The catalyst was a growing concern that AI optimism had pushed valuations beyond reasonable levels.
The Dow hit records on the strength of everything that is not expensive technology. The 30-stock average added 594.83 points on Thursday for a record close, hitting a new all-time intraday high of 52,903.85. Apple gained 4.8%, McDonald's rose 4.07%, and Disney added 3.84%. The rotation into traditional sectors, defensives, and value names is the clearest expression yet of a market broadening away from its dependence on a handful of AI-exposed megacaps.
The AI infrastructure financing question intensified. Reports emerged that OpenAI was in talks to sell a 5% stake to the US government, following the prior week's news of a possible IPO delay. Separately, Meta announced it may begin renting out excess computing capacity, pitting it against cloud providers like CoreWeave and Nebius. JPMorgan cautioned against the move, arguing Meta should develop core AI products and leverage its four billion users rather than sell access to infrastructure, reading the decision as a sign that its capital expenditure may have been overdone.
Tesla fell despite a strong delivery beat. Tesla delivered 480,126 vehicles in the second quarter, well above the 406,600 expected and up from 384,000 a year earlier. Yet the stock fell around 7.5% on the week, caught in the broader unwinding of high-multiple growth and AI-adjacent names. The disconnect between a clear operational beat and a sharp share-price decline echoed the pattern that has defined this phase: strong fundamentals are not sufficient when positioning is crowded, and the macro lens has shifted.
Stock Market Performance & Other Assets
Equities
The first half closed with the Dow up 8.9%, its best first-half performance since 2021, the S&P 500 up 9.6%, the Nasdaq up 12.8%, and the Russell 2000 up nearly 22%, its best first half since 1991. For the shortened week, the S&P gained 1.8%, the Nasdaq added 2.1%, and the Dow rose 2%. Netflix jumped 5% on Thursday, its best day since February, as a rare tech outperformer. Bending Spoons, the Italian software company that owns AOL and Vimeo, popped 42% on its Nasdaq debut, and Tesla's delivery beat provided a bright spot even as the shares fell. The divergence between the record-setting Dow and the struggling Nasdaq was the week's signature.
Commodities
Oil continued its descent, with WTI trading around $67 by Thursday, its lowest level since early March, as progress on reopening the Strait of Hormuz eased supply concerns and traffic through the waterway picked up. Gold held firm, supported by the softer jobs data and easing rate-hike expectations, which lifted the appeal of the non-yielding metal. The continued fall in energy remains the single most important disinflationary force heading into the second half.
Fixed Income & Crypto
Treasury yields eased following the soft jobs report as rate-hike odds fell. The 10-year yield drifted lower, reflecting the market's judgement that a slowing labour market gives the Fed room to hold rather than tighten. Bitcoin traded around $58,346, continuing to reflect the risk-off tone in high-beta assets and the broader concern over AI infrastructure financing that has weighed on speculative positioning over the past two weeks.
Market Movers & Shakers
The week crystallised the rotation that had been building. Capital left semiconductors, the sector that led the first half, and moved into the industrials, financials, healthcare, and consumer names that had lagged. Apple, McDonald's, and Disney led the Dow to records while Micron, KLA, and Teradyne dragged the Nasdaq lower. The soft jobs report was the catalyst that gave the rotation its rationale, cooling the rate-hike fears that had pressured the whole market and allowing capital to move toward cheaper, more defensive corners. The buy signals now favour the beneficiaries of a broadening market and a Fed on hold, while the crowded AI-infrastructure trade works through its first genuine revaluation of the year.
One Insight
The end of the second quarter offers a natural moment to assess where the market stands, and the picture is one of a bull market attempting to change its engine mid-flight. For eighteen months, the market ran on a narrow base of AI-infrastructure names. This week, that base was actively sold, yet the major indices held near records because capital rotated rather than retreated. That distinction matters enormously. A market that broadens its leadership from a handful of megacaps into industrials, financials, healthcare, and consumer names is structurally healthier and more durable than one that depends on the continued outperformance of a single crowded theme. The Russell 2000's near 22% first-half gain, its best since 1991, is the clearest evidence that the rally is no longer confined to large-cap technology.
The soft jobs report was the catalyst that made the rotation coherent. A labour market that added just 57,000 jobs, with sharp downward revisions to prior months, tells the Fed that the tightening it feared may not be necessary. That interpretation is what allowed markets to rally on what would ordinarily read as bad economic news. Warsh himself, speaking in Sintra, declined to offer forward guidance and instead pointed to the data, noting only that prices remain too high. His approach places the burden of interpretation on the market, and this week the market chose to read a cooling economy as a reason for the Fed to hold rather than a reason to worry about growth. That reading holds as long as the labour market slows gently rather than sharply. The second half of 2026 will be defined by whether this rotation broadens into a durable, well-supported advance or whether the revaluation of the AI trade that began this week deepens into something that the newly diversified leadership cannot fully offset. For now, the market has navigated the transition with more grace than many expected.
What We’re Watching (next 7–14 days)
Q2 earnings season begins: The major banks kick off the second-quarter reporting season in the week of July 13, with JPMorgan, Goldman Sachs, and the other large financials first to report. Their results will be the first comprehensive read on how the post-conflict, disinflating macro backdrop is feeding into corporate performance and guidance.
The AI trade revaluation: Whether the semiconductor selloff deepens or stabilises will be the single most important market signal of the coming fortnight. A continued unwind would test whether the broadening rotation can hold the indices up on its own.
Oil's path below $70: WTI near $67 is a powerful disinflationary force. Continued progress on the Strait of Hormuz reopening and further declines at the pump would strengthen the case for the Fed to hold and could eventually reopen the conversation about cuts later in the year.
June CPI (mid-July): The next inflation print will show whether the collapse in oil is beginning to feed through into headline inflation. A softer reading, combined with the weak jobs report, would materially shift the rate outlook toward a sustained hold.
Next week's major earnings:
The week of July 6 is quiet on the corporate calendar as the market settles back in after the Independence Day holiday, with attention turning to the FOMC minutes from the June meeting for further insight into the committee's internal divisions. The Q2 earnings season proper begins the following week with the major banks, making the coming days primarily a macro-data and Fed-commentary window before the corporate flow resumes in earnest.
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