Launch Pad

Today

Yesterday’s selloff in semiconductor stocks is continuing this morning, with Nasdaq futures down more than -1%, despite another strong set of results from TSMC. The weakness spread across Asia overnight, with Japan’s Nikkei falling -4% and Taiwan’s benchmark index dropping -6.5%. Investors have been selling chip stocks even after TSMC comfortably beat second-quarter earnings expectations, raised its full-year revenue outlook, and announced plans to expand its U.S. investment, the largest in the company’s history as it balances strategic business and political objectives. TSMC also increased its 2026 capex budget to a record $64 billion to meet accelerating demand for AI infrastructure. However, that level of spending may itself be contributing to the recent pullback, as investors question whether the pace of AI infrastructure investment has become excessive following the sector’s remarkable rally. While the long-term AI story remains intact, concerns about elevated valuations and the potential for overbuilding may be driving a round of profit-taking. 

The conflict between the U.S. and Iran continues to escalate, as U.S. forces expanded their bombing campaign to include bridges, an airport, and military logistics infrastructure in southern Iran. Following the recent waves of attacks, Iran retaliated with strikes on U.S. bases in Kuwait, Bahrain, and Oman. Fighting also increased around the Strait of Hormuz, with the U.S. boarding a tanker to enforce its blockade and another vessel said to be struck near Oman, which has further disrupted global energy supplies and pushed oil prices to around $85 per barrel. Although both sides have for the most part avoided targeting major civilian infrastructure so far, the risk of broader escalation remains high, with Iran threatening attacks on regional infrastructure and signaling it could encourage Houthi forces in Yemen to disrupt shipping through other routes. 

The Bank of Japan is expected to leave its policy rate unchanged at its July meeting after raising rates to 1.0% in June, but policymakers are likely to upgrade their economic growth forecast as Japan’s economy continues to benefit from strong AI-related global demand. Officials are also expected to soften their stance on downside economic risks, reflecting confidence that the economy can withstand recent geopolitical tensions, while maintaining concerns that inflation will remain above the BOJ’s 2% target as businesses continue passing higher costs on to consumers. Still, markets have priced in another rate hike by year-end, with growing expectations that the next increase could come as early as October if inflation and economic momentum remains strong. While the economy is holding up well, Japanese stocks have been struggling, continuing their decline as a global semiconductor selloff raised concerns that the AI-driven rally has become overextended. The Nikkei 225 dropped 3.2%, moving into correction territory at more than 10% below its June peak, while the Topix declined 1.8%. 

Big banks, big profits. America’s six largest banks generated a combined $102 billion in profits in the first half of 2026, led by JPMorgan Chase with $37.7 billion, followed by Bank of America ($17.7 billion), Goldman Sachs ($12.3 billion), Wells Fargo ($11.7 billion), Citigroup ($11.6 billion), and Morgan Stanley ($11.2 billion). Record trading revenue, resilient capital markets, and strong demand for AI-related financing fuelled earnings, while bank shares have significantly outperformed private equity firms since the 2024 U.S. election. After years of losing talent and market share to private equity, traditional banks are benefitting from a resurgence in capital markets activity as companies tap debt and equity markets to fund AI investments. Easing regulation, higher market volatility, and a rebound in deal making have provided additional support for the sector. 

The U.S. housing market remains one of the more interest rate-sensitive sectors of the economy, making mortgage rates a key barometer of consumer health and economic activity. U.S. mortgage rates rose to 6.55% for a 30-year fixed loan, the highest level since last August, as the renewed conflict in the Middle East pushed Treasury yields higher and reignited inflation concerns. Higher borrowing costs continue to weigh on the housing market, with pending home sales falling 5.4% in June and sellers outnumbering buyers by nearly 500,000, although the median home price reached another record due to demand from higher-income buyers. Elevated mortgage rates are pricing out first-time and move-up buyers, leaving affordability a key challenge despite solid housing supply. 

Time to step up. Option market positioning suggests that investors are becoming more and more optimistic that the Mag Seven will reassert market leadership during earnings season. An analysis of options pricing found that Meta and Microsoft have the strongest bullish positioning, with out-of-the-money call options trading at unusually large premiums to equivalent puts relative to their own one-year history, followed by Amazon, Tesla, and AMD. While this reflects expectations for strong earnings and renewed upside, some strategists view the extreme call buying as a potential contrarian signal, warning that these stocks may be priced for perfection and vulnerable to disappointment if results fail to exceed lofty expectations. 

Slow down to save money. A new study found that simply driving at posted speed limits could save U.S. drivers an estimated 7.2 million gallons of fuel and about $26 million in gasoline costs each day, while reducing carbon emissions, with almost no impact on travel times. Researchers analyzed 120 million trips and found that although more than 40% involved speeding, obeying speed limits would add an average of only 54 seconds to a driver’s daily travel. The findings suggest that slower driving is an easy way to improve fuel efficiency for both gas-powered vehicles and EVs. This may also come in handy given how much elevated fuel prices have pressured household budgets. 

Commodities

Oil prices have been higher for all but one day this week and heading for its biggest weekly advance since April as the escalating U.S.-Iran tensions continued to disrupt supply from the Middle East. Overnight, the U.S. carried out another wave of attacks on Iran, hitting targets including defense sites, while Iran responded by firing on U.S. bases in Kuwait, Jordan and Bahrain. Energy markets in the U.S. and Europe are flashing record tightness, raising the risk of higher costs for consumers already under strain. The squeeze coincides with a decline in Russian exports after Ukraine attacked the country’s refineries and prompted Moscow to ban diesel exports. Experts have noted that a narrow deal remains a base case, but it has become a considerably less comfortable one. The question becomes whether the shipping market can adapt to a continuing threat rather than whether the diplomacy can resolve. Crude benchmarks have rebounded nearly 20% and sit at the highest levels in nearly a month.   

Gold is on track for its biggest weekly drop since early June as renewed hostilities raised concerns that higher interest rates will be needed to contain war-driven inflation. Bullion edged higher and is near $4,000, but is down about -3% on the week. The conflict, now in its fifth month, is again driving up energy and commodity prices which is reigniting fears the Federal Reserve may eventually need to tighten monetary policy, despite soft U.S. economic data suggesting a rate hike isn’t likely in the near term. Bullion has hovered in a narrow range around $4,000 an ounce in recent weeks after losing -14% in the second quarter, its worst showing since 2013. It notched its worst monthly performance since the 2008 financial crisis in June. A growing number of Fed officials are expressing concern over high inflation and warning that the central bank might soon need to lift rates. 

Fixed income and economics

Treasury yields are lower this morning as data released throughout the week indicated the U.S. economy continues to withstand inflationary pressures caused by the Iran war, even as conflicts in the Middle East intensified overnight. Yields on the benchmark 10-year are down to 4.51%, much lower than the 4.6% level where it started the week. The 30-year Treasury yield, which tends to track broader geopolitical events, was more than 3 basis points lower at 5.05%. The slide in yields has been helped by cooler-than-expected inflation data, both from the producer and consumer side, while U.S. jobless claims for the week ending July 11 came in lower than forecast, at a seasonally-adjusted 208,000. Traders continue to monitor escalating tensions between the U.S. and Iran, which pushed energy prices higher, and the potential impact on the Fed’s interest rate path. For now, though, the better-than-expected inflation data looks to be outweighing higher oil prices.  

Chart of the day
 

Markets

Quote of the day
 

It is far better to be alone, than to be in bad company. George Washington