S&P 500 Retreats as AI Speculation Deflates with Arrival of Lower Cost Competition

The S&P 500 (Index: SPX) retreated 1.5% from its previous week’s close to end the week at 7,457.69.

Much of the market’s downward movement came in response to a growing awareness among investors of the high cost of utilizing the most advanced AI systems over the last several weeks. The shift in sentiment has largely capped the upward movement of these stocks despite many having just reported strong earnings.

But it hasn’t deflated the S&P 500 the way the index crashed during 2025′s “DeepSeek” scare, which one analyst provocatively described as “hiding” a crashing market brought about by investors rotating their investments from AI tech stocks into other sectors of the market.

That’s a phenomenon we’ve described as the conveyance effect. This is a special case of market rotation, in which the gains of what might be described as a speculative bubble within either a single stock or sector of the stock market becomes diffused into the larger market.

Provided investors maintain their demand to own stocks, it can be a healthy development that reduces the concentration of the biggest companies within the market cap-weighted index. In that situation, the index itself goes through a brief decline before resuming an upward trajectory.

If that demand falls however, the index can decline because money is in effect leaving the market instead of being conveyed into the ownership of other stocks within it. That’s the recipe for a crash that takes both the sector with the speculative gain and the rest of the market down with it. Much like what happened during the DeepSeek scare.

In the latest update of the alternative futures chart, we find the S&P 500′s trajectory dipped, but remains well within the redzone forecast range. This outcome indicates the deflation of speculative gains in the AI sector hasn’t become a drag on the whole stock market.

There is, of course, more going on to shape investors’ outlook for the businesses whose stocks make up S&P 500 index. Here are the market moving headlines of the week that was:

Monday, 13 July 2026

• Signs and portents for the U.S. economy:

• Oil up 9% to one-month high as US says it will blockade entire Iranian coastline, all vessels

• Trump: Iran blockade reinstated, US to charge 20% on Strait of Hormuz cargo

This one statistic reveals the AI job takeover has started

• Wall Street banks ramp up digital assistants in bid to win productivity race
• AI isn’t killing jobs at these companies — it’s boosting hiring

Fed minion makes rate hike nearly a 50-50 possibility for July 2026:

• Fed’s Waller says rate hike may be needed if core inflation stays hot

• Federal funds futures nearly split as Waller says he will consider a rate hike if inflation remains hot

Bigger trouble, stimulus developing in China:

• China’s GDP growth set to slow, raising expectations for more stimulus
• China June exports growth set to cool, but AI demand underpins overall strength – Reuters poll
• China’s premier urges ‘objective’ understanding of the economy
• China aims to spur consumption in first five-year blueprint

BOJ minions think higher growth on the way for Japan’s economy as stimulus expected:

• BOJ may raise growth forecast, maintain vigilance to inflation risk, sources say
• Japan signals massive pension shift to domestic assets, sparking rally in yen, bonds

• Japan pension pivot seen as a slow burn, not a bond market fire sale

ECB minions thinking about adding Eurocrypto as Eurozone currency:

• Explainer: Europe’s digital euro: What it is and how it would work

U.S. stocks end lower as chip stocks fall, U.S.-Iran tensions rise

• Wall Street retreats as renewed Middle East strife hits sentiment; chipmakers drop

Tuesday, 14 July 2026

• Signs and portents for the U.S. economy:

• Inflation eased more than expected in June as gas prices fell, CPI report shows

• US consumer inflation likely increased at a slow pace in June as gasoline prices retreated
• Here’s the inflation breakdown for June 2026 — in one chart
• Rate-Hike Odds Slump As US Consumer Prices Plunge Most Since COVID In June
• Traders expect Fed to skip July rate hike as inflation cools

Oil prices rise 2% to one-month high as US-Iran attacks deepen supply disruption

New chief Fed minion lays out U.S. monetary policy changes to Congress:

• Fed’s Warsh: Committed to both inflation and employment mandates
• Warsh pledges Fed policy ‘regime change’ to rid inflation ‘tax’ on American people
• Warsh says markets to get ample notice to any Fed balance sheet changes

Growth in China’s exports paced by AI demand outside China, weak demand for loans within China:

• China’s June trade tops forecasts buoyed by AI boom
• China tells some banks not to re-discount bills at rates below 0.5%, sources say

S&P 500 and Nasdaq end higher on cool inflation data, solid bank earnings

• U.S. stocks advance after cooler inflation print, higher oil prices

Wednesday, 15 July 2026

• Signs and portents for the U.S. economy:

• US producer prices post largest drop in 14 months; inflation risks still tilted to the upside

• July Rate-Hike Off The Table After Producer Price Inflation Drops Most Since COVID

Busiest US container port sets cargo record in June

Oil prices make small gain on smaller US inventory draw

Wall Street bank earnings surge, lifted by trading and investment banking

• Wall Street’s investment banking machine firing on all cylinders

Fed minion reveals they’re not really paying attention to U.S. inflation data:

• Fed’s Cook says she is prepared to act soon if inflation does not begin to slow

Another minion sees the writing on the wall:

• Fed’s Williams: “Unquestionably too-high” inflation may soon subside

Fed minions thinking about revamping their own inflation measure:

• Revamp of ‘core’ PCE measure could help Fed estimate underlying inflation, research says

Bigger trouble developing in China:

• China’s second-quarter economic growth cools to 3-1/2-year low as imbalances worsen

• VIEW China’s second-quarter economic growth misses market forecast
• China new home prices fall at slower pace, but recovery doubtful

China’s rare earth curbs endanger $6.5 trillion of Western industry, IEA says

BOJ minions / Bigger trouble developing in Japan:

• Japan manufacturers stay upbeat on chip demand, services hit by costs

ECB minions standing by for action:

• ECB policymakers take measured tone on price risks but urge vigilance

• ECB’s Kocher sees currently no second-round effects from Iran war, but bank is ready to act

Wall Street closes higher as the tech trade strengthens, wholesale inflation comes cooler

• Wall St ends higher on cool inflation data, strong earnings

Thursday, 16 July 2026

• Signs and portents for the U.S. economy:

• US pending home sales slump in June amid affordability challenges
• Lower gasoline prices restrain US retail sales, underlying momentum remains

• Oil settles lower, but remains near one-month high on U.S.-Iran tension

Fed minions called out for policy flip-flops:

• As Fed Chair Warsh sticks to policy silence, colleagues voice their views
• Fed flip-flops make case for less talk

Fed minions say they’ll hike rates if inflation doesn’t fall, don’t seem to be aware of consumer, producer price indices:

• Fed may need to hike rates if inflation does not ease soon, Jefferson says
• Fed’s Schmid: Inflation is “concerning” and the focus of setting policy right now
• Fed’s Logan calls for ‘modestly higher’ interest rates

Bigger trouble, stimulus developing in China:

• China’s record consumer defaults undermine Beijing’s push to boost spending

Bigger trouble developing in Japan, BOJ minions getting excited to hike Japan’s interest rates again, bail out Japan’s currency again:

• Kuroda’s negative rate surprise shocked his own BOJ board, minutes show
• Japan household inflation expectations rise, build case for BOJ rate hikes
• BOJ may face pressure to ramp up bond-buying if yields spike, ex-central bank policymaker says

ECB minions standing by to hike Eurozone interest rates later:

• ECB to hold rates now but energy price resurgence points to September hike
• Euro zone yields rise, gap between German and US borrowing costs smallest in a month

Wall Street closes in the red as tech stocks drag markets

• Wall Street ends lower as chip weakness offsets solid earnings, economic data

Friday, 17 July 2026

• Signs and portents for the U.S. economy:

• As US AI costs soar, global businesses pivot to China’s low-cost, open-weight models
• Oil rises on renewed US-Iran hostilities and threat of Red Sea closure
• US regional banks brush off war jitters with lending surge, fee boost

Bigger trouble developing in and out of China:

• China’s oil imports have plunged during the Iran war. How much will they recover?
• China’s top airlines warn of heavy losses ahead of uncertain summer
• Inside the Chinese fraud rings stealing billio
• Chinese AI start-up Moonshot launches model challenging Anthropic’s lead

Bigger trouble developing in Japan, BOJ minions standing by for action:

• Japan June core inflation seen at 1.6% on elevated energy prices: Reuters poll
• Yen likely to weaken past 170 before Japan’s growth bet pays off, RSM’s Brusuelas says
• Japan to leave monetary policy tools to BOJ in economic blueprint, document shows

S&P 500 logs weekly decline as tech selloff weighs on markets

• S&P 500 closes lower, Nasdaq falls more than 1% as chip stocks suffer
• Chip stock weakness raises worries about AI rally-strength, leveraged trades

• U.S. stocks extend selloff led by semiconductors’ global decline, Moonshot AI’s Kimi-K3
• Apple unseats Nvidia to become world’s most valuable company as AI bets shift

The CME Group’s FedWatch Tool now only sees one rate hike in its forecast range as having a greater than 50% probability of happening: a quarter point rate hike coming when the Fed meets on 16 September (2026-Q3). The FedWatch tool however still sees the potential for additional rate hikes in 2027.

The Atlanta Fed’s GDPNow tool‘s estimate of real GDP growth for the U.S. economy in the current quarter of 2026-Q2 rebounded to +1.7% from the previous week’s real growth estimate of +1.2%.

Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon of a Wall Street bull who is shocked by the cost of their AI bill”.