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♦ Waterloo Capital ♦
Last Week
on Wall Street
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S&P 500
7,354
▼ -1.95% WK
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DOW JONES
51,876
▲ +0.60% WK
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NASDAQ
25,298
▼ -4.60% WK
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10-YR YIELD
4.38%
▼ -12 BPS WK
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LEAD Markets & Macro
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Crude fell all the way back to where it traded before February's war, reversing the biggest driver of this year's inflation, and the market spent the week selling its biggest winners into it.
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The three major indexes did not move together this week, which is the story. The Dow ground out a small gain while the Nasdaq dropped 4.6% over five straight losing sessions and the S&P 500 fell about 2%. Money left the semiconductor and big AI names that have carried the market all year and rotated into the parts of the index that had been left for dead: health care, staples, the defensives.
What makes the selloff strange is the backdrop, which should have been a gift. The war premium that has driven the entire macro story since February drained out of crude this week as tankers began moving through the Strait of Hormuz again and a peace framework took shape, pulling oil all the way back to pre-war levels. That is the lower-oil backdrop the market has wanted all year, the shift many investors see as the most likely path to eventually easing the Fed's hawkish stance, and the tape sold it anyway, because the selling was concentrated in exactly the names that had been leading. More on both stories below.
The week was a near-perfect inversion of the past two months. The force that had been hurting the market, the war and its oil shock, fully reversed; the force that had been carrying it, the AI trade, cracked. For balanced portfolios, that inversion is almost an argument for breadth on its own: the Dow's gain and health care's leadership cushioned the technology drawdown for anyone who owned more than the megacap basket, while concentration in the year's winners is precisely what stung this week. The 10-year yield drifted lower as oil fell, so duration did its part too.
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BOTTOM LINE
Oil round-tripped to pre-war levels, reversing the energy shock that drove this year's inflation surge, and the market sold its winners into it. The week rewarded breadth: the Dow and the defensives held while the AI trade, the engine of the whole rally, finally cooled.
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By the Numbers
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Nasdaq −4.6% on the week, five straight losing sessions as chips and big tech led the market lower |
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Dow +0.6%, the only one of the three major averages to finish higher, on a rotation into defensives |
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S&P 500 −1.95%, snapping its push to record highs earlier in June |
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Health care led the S&P 500, the best-performing sector on the week, a clean signal of the defensive rotation |
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VIX held around 17 to 19, contained even as technology sold off hard |
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Five-year inflation expectations fell to 3.3% in the final June University of Michigan survey, as consumers' war worries eased |
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· Two Stories That Moved the Tape ·
The Week's Defining Headlines
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STORY 01 Technology · AI & Semiconductors
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The key takeaway,
Micron closed out earnings season Wednesday with a quarter that beat on every line and a record outlook, and the stock jumped after hours. The rest of the AI and chip complex fell all week regardless, because the market stopped asking whether demand was real and started asking who is going to fund it.
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Micron reported fiscal third-quarter results after Wednesday's close that more than quadrupled revenue from a year earlier, to $41.46 billion, with adjusted earnings of $25.11 a share, both comfortably ahead of estimates. Data-center revenue alone topped $25 billion in the quarter, an annualized run rate above $100 billion, and the company guided to a record quarter ahead. The stock rose about 15% in extended trading. By any measure of demand, the AI memory cycle has never looked stronger.
And the group sold off anyway. The Nasdaq fell for a fifth straight session to close the week, with chips leading the broad market lower even after Micron's print. The catalyst was not earnings; it was a report that OpenAI is weighing pushing its own IPO into 2027, citing the volatile post-debut trading of SpaceX and the broader wobble in AI shares. The read-through that unsettled the tape: if the marquee names that anchor the AI story cannot tap public markets on schedule, the capital that funds the entire buildout, the data centers, the chips, the power, suddenly looks less certain. JPMorgan flagged exactly that concern.
The tension between those two facts is the whole story. Demand has never been more visible, Micron's $100-billion-plus annualized data-center run rate and its backlog of long-term customer commitments make that concrete, but the market spent the week repricing the financing rather than the demand.
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DATA THAT DROVE THE STORY
| ■ | Micron FQ3 revenue: $41.46 billion, more than quadruple a year ago, vs. roughly $35.7 billion expected |
| ■ | Adjusted EPS: $25.11 vs. about $20.50 expected; the stock rose ~15% after hours after closing the regular session near $1,047 |
| ■ | Data-center revenue: over $25 billion in the quarter, an annualized run rate above $100 billion; FQ4 guided to a record |
| ■ | The trigger: a report that OpenAI may delay its IPO into 2027, citing SpaceX's shaky post-debut trading and AI-share volatility |
| ■ | SpaceX: two weeks after its record debut, fell about 16% on Monday alone in a third straight down session |
| ■ | The worry, per JPMorgan: the sustainability of AI infrastructure spending if capital-markets funding for the buildout slows |
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Source: CNBC: Micron (MU) earnings report, Q3 2026 →
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STORY 02 Macro · Energy
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The key takeaway,
Oil collapsed this week to its lowest since before February's war as Iranian tankers began moving through the Strait of Hormuz again under a 60-day peace framework. Energy has been the biggest driver of this year's inflation surge, so a crude move this large resets the most important input behind it, though it has not yet shown up in the inflation data.
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West Texas Intermediate settled near $70 a barrel and Brent near $74 at midweek, both their lowest levels since before the war began in late February, after the United States and Iran agreed on a roadmap toward a peace deal within 60 days and Washington issued a 60-day license allowing Iran to sell oil on international markets. Tankers that had been stranded in the Persian Gulf for months began leaving Hormuz, and President Trump said Iran had told the U.S. it would charge no tolls or fees on vessels transiting the strait. From its wartime peak, crude has now fallen nearly 40%.
Energy was the force that pushed consumer prices above 4% this year and kept the Fed boxed in. Thursday's PCE report, the Fed's preferred inflation gauge, still ran hot, because it measures May, when oil was still elevated, so the lower crude prices of recent days are not reflected in the official data yet. Whether cheaper energy feeds through to cooler inflation readings, and how quickly, is an open question; energy costs have historically passed through with a lag, in both directions.
The Fed under its new chair spent the prior week sounding decidedly hawkish, and futures markets still lean toward a possible rate hike later this year. Yet the development that did the most to shift the inflation conversation this month was not a rate decision; it was a shipping lane reopening.
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DATA THAT DROVE THE STORY
| ■ | Crude: WTI settled near $70 and Brent near $74 at midweek, the lowest since before the late-February war; oil is down nearly 40% from its wartime high |
| ■ | The framework: a U.S.-Iran roadmap toward a peace deal within 60 days, plus a 60-day U.S. license letting Iran sell oil internationally |
| ■ | Hormuz reopening: tankers stranded for months began leaving the strait; Trump said Iran would impose no tolls or fees on transiting vessels |
| ■ | Brent milestone: traded below $74 for the first time since the war began on February 28 |
| ■ | The inflation read: energy drove this year's surge above 4%; the recent drop in crude has not yet shown up in the official inflation data |
| ■ | Fed setup: futures still lean toward a possible 2026 rate hike, around two-thirds odds for September, despite the energy relief |
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Source: CNBC: 10-year yield falls below 4.5% as oil falls to pre-war levels →
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· Other Things Worth Knowing ·
Around the Water Cooler
Six stories from this week worth your morning coffee.
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IPO · SEMIS
SK Hynix files for a nearly $30 billion U.S. listing
The HBM memory leader plans a Nasdaq listing around July 10 that would rank among the largest ever, adding another giant AI-chip name to U.S. markets.
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INDICES · BIG TECH
Alphabet is joining the Dow, replacing Verizon
Effective June 29, the swap puts all five of the largest U.S. tech companies in the price-weighted blue-chip average for the first time.
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MACRO · INFLATION
The Fed's preferred inflation gauge stayed hot in May
Core PCE rose to 3.4% year over year, its highest since October 2023, with headline at 4.1%; both landed about as expected.
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COMMODITIES · SAFE HAVENS
Gold slipped below $4,000 for the first time since November
A firmer dollar, rising rate-hike odds, and the fading war premium pulled bullion to a seven-month low, even as its longer-term bid held.
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RETAIL · MEME STOCKS
Wendy's became the market's new meme stock
Shares jumped about 26% (over 40% intraday, tripping a volatility halt) on a new CFO hire and a "Save Wendy's" wave of retail buying into a heavily shorted name.
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TEXAS · TELECOM
Dallas-based AT&T held green in a red tape
As communication-services stocks logged their worst day since April 2025, with Alphabet leading the sector lower, AT&T was a rare gainer.
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