The big picture
Last week gave markets two big surprises, one that fed the rally and one that stopped a chunk of it in its tracks. The good surprise came Tuesday morning: June inflation cooled by far more than anyone expected. The bad surprise came from an entirely different corner of the market, and it’s the one investors will still be talking about heading into next week.
Start with the good news. Headline CPI actually fell 0.4% in June, the biggest one-month drop since April 2020, pulling the annual inflation rate down to 3.5% from May’s 4.2%, well below the 3.8% economists had pencilled in. Core inflation, which strips out food and energy, came in flat for the month too, undershooting expectations of a 0.2% rise. Falling gasoline prices, down almost 10% in a single month as the ceasefire-driven oil price collapse finally worked its way through to the pump, did most of the heavy lifting. Traders responded by trimming the odds of a September rate hike from north of 75% down to around 63%. It was, by a wide margin, the best inflation print of the year, and it landed on the very same morning as America’s biggest banks kicked off earnings season with genuinely stunning results. JPMorgan posted its highest quarterly profit in the firm’s history. Goldman Sachs beat estimates by 45%. Wells Fargo cleared its number by more than 15%. For a few hours on Tuesday, it looked like markets had been handed the best of all possible worlds.
Then came IBM. On Tuesday afternoon, ahead of its scheduled July 22 earnings date, IBM pre-announced second-quarter results that missed badly, and warned that enterprise clients were shifting spending away from its software and infrastructure business and toward buying their own AI servers, memory chips and hardware directly. The stock fell more than 25% the next day, its worst single session since the company’s shares began trading in 1968. It’s a genuinely important data point, not just for IBM, but for the broader debate about who actually captures the economic value of the AI boom. If large enterprises are increasingly choosing to build their own AI infrastructure rather than buy software and consulting from incumbents like IBM, that’s a meaningful signal about where the money is flowing, and it’s a signal that matters enormously heading into a week when three of the so-called Magnificent Seven report results.
So here’s where markets sit: inflation is cooling faster than expected, the consumer is still spending, and the biggest banks in the country just had a record quarter. But a legacy technology giant just had its worst day in nearly sixty years because its own client base is routing around it toward AI hardware. Next week’s earnings from Tesla, Alphabet and IBM’s full results, alongside a fresh look at business activity through the July flash PMIs, should tell us a great deal about which of these two stories, the soft-landing rally or the AI-driven disruption of old-guard tech, is going to define the rest of the summer.
Last week’s earnings: who reported, and how they did
JPMorgan Chase (JPM) delivered the standout number of bank earnings day. Excluding one-off items tied to its Visa share stake, earnings came in at $6.14 a share against a consensus of roughly $5.74, a beat of about 7%, with managed revenue of $58 billion, up 27% from a year earlier. Every single business line posted record revenue, with trading revenue in particular surging on elevated market volatility. CEO Jamie Dimon pointed to AI-related capital spending and fiscal stimulus as tailwinds feeding through into broader business investment. Shares rose modestly, a fairly muted reaction given just how large the beat was, mostly because so much good news had already been priced in.
Goldman Sachs (GS) posted one of the largest earnings beats of the entire quarter. Earnings per share came in at $20.98 against a consensus of roughly $14.48, a beat of more than 45%, on net revenue of $20.34 billion, up 39% year-on-year. The bank’s equities trading desk brought in $7.42 billion, up 72% from a year ago and a third consecutive all-time record, while investment banking fees climbed 55%. CEO David Solomon described momentum as accelerating across every part of the business. It was, by almost any measure, one of the strongest quarters in the firm’s history.
Wells Fargo (WFC) also beat comfortably, posting earnings of $2.00 a share against a consensus of $1.73, up sharply from $1.54 in the same quarter last year. Despite the clear beat, shares actually dipped on the day, a reminder that with expectations running this high across the banking sector, a good quarter alone isn’t always enough to move a stock higher, particularly when investors are looking for signs of acceleration rather than just steady improvement.
Netflix (NFLX) rounded out the week with a genuinely mixed reaction. Earnings of 80 cents a share edged past the 79-cent consensus, and revenue of $12.56 billion was up 13% year-on-year, roughly in line with expectations. The trouble was guidance: Netflix forecast third-quarter revenue growth of about 11.7%, well short of the roughly 13% analysts were looking for. Shares fell as much as 9% in after-hours trading, their lowest level in more than a year, as investors focused less on a solid quarter and more on early signs that engagement growth may be levelling off.
Next week’s earnings preview: who’s reporting, and what’s expected
Next week is arguably the single biggest of the summer, headlined by two of the Magnificent Seven reporting on the same afternoon.
Tesla (TSLA) reports Wednesday after the close, with consensus estimates ranging from roughly 47 to 55 cents a share on revenue of around $25 to $26.5 billion. Tesla already delivered a positive surprise earlier this month, posting its best-ever second quarter for deliveries at over 480,000 vehicles, comfortably ahead of analyst expectations. That takes some of the pressure off the headline numbers. What investors really want to hear about is Robotaxi and Optimus progress, since Tesla has raised its 2026 capital spending forecast to $25 billion specifically to fund its AI and autonomy push, and management has warned free cash flow could turn negative as a result. A strong delivery-driven beat paired with credible updates on the autonomy roadmap could send the stock back toward its highs; a quarter that leans too heavily on the car business without fresh AI progress risks disappointing a market that has increasingly priced Tesla as an AI company first and an automaker second.
Alphabet (GOOGL) also reports Wednesday after the close, with consensus around $2.87 a share on revenue of roughly $116.5 billion, up nearly 21% year-on-year. Alphabet has beaten estimates in each of the last four quarters, including a blowout first quarter in which Google Cloud revenue grew 63% and operating margin nearly doubled. The market will be watching cloud growth and margins above everything else, since that’s the clearest read on whether Alphabet’s enormous AI infrastructure spending is translating into profit rather than just cost. Given what just happened to IBM, any hint that enterprise cloud demand is softening would be taken very seriously; a Cloud number that holds near recent growth rates would likely send the stock back toward its 52-week high.
IBM (IBM) delivers its full second-quarter results and, crucially, 2026 guidance on Wednesday, five days after its pre-announcement already sent the stock down 25%. The company had flagged preliminary revenue of $17.2 billion, about $700 million short of the prior consensus, and adjusted earnings of $2.93 a share versus the $3.02 expected, with CEO Arvind Krishna directly attributing the miss to clients redirecting spending toward their own AI hardware rather than IBM’s software and infrastructure. With the worst of the surprise already priced in, next week’s call is really about the path forward: any credible plan to stabilise software growth or capitalise on IBM’s mainframe and AI-inferencing capabilities could help the stock find a floor, while a cautious 2026 outlook would confirm the market’s worst fears about the durability of IBM’s business model in an AI-first world.
American Express (AXP) rounds out the week, reporting Friday morning, with consensus around $4.39 to $4.40 a share, up roughly 8% year-on-year. Amex has beaten estimates in three of its last four quarters and posted its strongest card-member spending growth in three years last quarter. As a premium-skewing card issuer, Amex is one of the cleanest reads available on whether the softer inflation print and resilient retail sales data from last week are translating into continued high-end consumer spending, or whether cracks are starting to show even among more affluent households.
Last week’s economic data: what we learned
June CPI, released Tuesday, was the standout data point of the week and arguably of the summer so far. Headline inflation fell 0.4% for the month, the sharpest monthly decline since April 2020, pulling the annual rate down to 3.5% from 4.2% in May and well below the 3.8% consensus. Core CPI was flat on the month, versus expectations for a 0.2% rise, bringing the annual core rate down to 2.6% from 2.9%. Falling gasoline prices, down 9.7% for the month as lower oil prices worked their way to the pump, accounted for most of the improvement, while services inflation, the component the Fed watches most closely for underlying price pressure, also moderated meaningfully. Markets responded by pulling forward rate-cut hopes and trimming the odds of a September hike, though a slim majority of traders still expect the Fed to raise rates at some point this year.
Retail sales for June, released Thursday, rose a modest 0.2%, roughly in line with expectations, following a stronger 1.0% gain in May. Strip out the effect of falling gasoline station receipts, and the picture looks considerably healthier: sales excluding gas stations rose a solid 0.7%. Auto sales were particularly strong, up 1.9% for the month, and online sales jumped nearly 2%, helped by a heavy Amazon Prime Day promotional period. Overall, the report painted a picture of a consumer that is slowing modestly but by no means retreating, consistent with an economy still expanding at a reasonable pace even as the labour market cools.
Next week’s economic data preview: what to watch
Flash PMIs (Thursday): S&P Global’s preliminary July readings on manufacturing and services activity will offer the first real-time look at how businesses are responding to July’s whipsaw of good inflation news and the shock IBM warning. Coming into the report, business activity had been holding in solidly expansionary territory, with June’s composite reading around 51.9. A strong print, especially in services, would reinforce the idea that the broader economy remains resilient regardless of turbulence in any single sector. A weaker-than-expected reading, particularly if new orders in the technology and business services components soften, would raise the uncomfortable question of whether IBM’s troubles are an isolated story or an early signal of broader enterprise spending caution.
New Home Sales (Thursday): June’s new home sales data will be an important test of whether falling mortgage rates and July’s much cooler-than-expected inflation print are starting to draw buyers back into the housing market. Housing has been one of the more persistently weak spots in the economy this year. A meaningful pickup in sales would suggest lower borrowing costs are finally starting to work their way through to actual transactions; a continued soft reading would suggest affordability challenges are outweighing the recent improvement in the rate outlook.
Where things stand
Markets are digesting two very different stories at once, and next week should help clarify which one has more staying power. The macro backdrop genuinely improved last week: inflation is cooling faster than expected, retail sales show a resilient if moderating consumer, and America’s biggest banks just posted some of the strongest quarters in their history. That’s about as constructive a setup as investors could ask for heading into the back half of the summer. Set against that is a much more uncomfortable question raised by IBM’s collapse: as companies pour unprecedented sums into AI infrastructure, who actually captures that value, the hardware and hyperscaler names building the infrastructure, or the software and services incumbents that have historically sat between technology and the enterprise customer? Tesla and Alphabet’s results, alongside IBM’s full guidance, should go a long way toward answering that question for the market as a whole.
What investors should be doing
Cautious investors should treat last week’s IBM shock as a useful reminder that even in a market environment as constructive as this one, individual companies can still suffer dramatic, company-specific setbacks with little warning. That’s not a reason to abandon quality large-cap positions, but it is a reason to make sure portfolios aren’t overly concentrated in any single legacy technology name on the assumption that past dominance guarantees future relevance in an AI-driven world. With three major Magnificent Seven reports landing within 24 hours of each other next week, this is a sensible week to hold steady rather than chase any single day’s price action, and to lean on diversification across both defensive and growth positions.
Balanced investors have a genuinely interesting opportunity to reassess technology sector exposure this week. The gap between how markets are pricing AI infrastructure beneficiaries versus legacy enterprise technology names has rarely been starker than it was after IBM’s warning. It’s worth reviewing whether your technology allocation is weighted toward companies actively building AI infrastructure and capturing new spending, versus companies that may be more exposed to the kind of client migration IBM just experienced. Beyond technology specifically, the combination of cooling inflation and strong bank earnings supports staying invested across a diversified mix of cyclical and growth exposure heading into the back half of the year.
Growth investors face two of the most important single-day catalysts of the entire year on Wednesday, with Tesla and Alphabet both reporting after the close within the same session. Both stocks carry premium valuations that assume continued execution on their respective AI ambitions, Robotaxi and Optimus for Tesla, Cloud growth and margin expansion for Alphabet, so the bar for both is high. Growth investors should go into Wednesday with a clear sense of what a genuine beat looks like for each name specifically, since generic “beat or miss” framing understates how much these two reports could move markets given how much of this year’s index-level gains have been concentrated in a small number of AI-exposed names.
Four companies very affected by current conditions
Micron Technology (MU) sits directly on the winning side of the dynamic that just hurt IBM so badly. As enterprises increasingly choose to buy memory chips, servers and AI hardware directly rather than purchase software and infrastructure services from incumbents, Micron is one of the most direct beneficiaries of that shift in spending. The company has already locked in binding 2026 production commitments for its high-bandwidth memory chips, giving it real pricing power and earnings visibility. IBM’s warning is, in a strange way, a data point in Micron’s favour: it’s further evidence that dollars once destined for enterprise software budgets are increasingly flowing toward hardware instead.
D.R. Horton (DHI), the country’s largest homebuilder by volume, is a direct beneficiary of last week’s much cooler-than-expected CPI print, and next week’s new home sales data will be a real-time test of whether that’s translating into actual buyer activity. Falling inflation increases the odds of Fed rate cuts down the line, which would lower mortgage rates and improve affordability in a housing market that has been one of the weakest parts of the economy this year. The risk is timing: rate relief tends to show up in transaction data with a lag, so a soft new home sales print next week wouldn’t necessarily undermine the longer-term thesis, but it could weigh on sentiment in the near term.
NextEra Energy (NEE), which reports its own second-quarter results on Monday, sits at the intersection of two of this year’s biggest structural themes: the enormous electricity demand created by AI data centre buildouts, and a Fed policy path that remains genuinely uncertain. As the largest regulated utility and renewable energy operator in the country, NextEra is one of the most direct ways to invest in the physical infrastructure of the AI boom rather than the software or chips layered on top of it. Utilities are also classically rate-sensitive, so last week’s softer inflation print and the resulting drop in rate-hike odds is a modest tailwind heading into its own earnings report.
Visa (V) offers one of the cleanest reads available on whether last week’s resilient retail sales and this week’s American Express earnings reflect genuine consumer strength or a more fragile picture underneath. As a pure payments-processing toll-taker with exposure across the entire spending spectrum, not just premium cardholders, Visa’s transaction volumes are a real-time pulse check on consumer health. With cooling inflation potentially easing pressure on household budgets, and with next week’s flash PMI and new home sales data offering further colour on the broader economy, Visa sits in a good position to confirm, or complicate, the more optimistic reading of the American consumer that emerged from last week’s data.
Final thought of the day
Markets head into next week holding two genuinely important and somewhat contradictory pieces of evidence from the week just gone: inflation that is cooling faster than almost anyone expected, and a legacy technology giant that just had its worst trading day in nearly six decades because its own customers are routing spending elsewhere. Tesla and Alphabet’s results on Wednesday, arriving within hours of each other, will tell us a great deal about whether the AI trade that has powered so much of this year’s gains still has real momentum behind it, or whether IBM’s warning was the first sign of a more complicated story about who actually wins as artificial intelligence reshapes enterprise technology spending. Either way, the answer should shape market direction for the rest of the summer.
This newsletter is not intended as financial advice. If you would like tailored financial advice, please get in touch with me directly at lawrence.young@holbornassets.com.
