The AI rotation stole the spotlight from a strong start to earnings season

Breaking news from the markets: The AI trade dominated the market once again this week, upstaging an impressive start to the second-quarter earnings season. Cooler-than-expected June reports on consumer and producer prices offered encouraging signs that inflation continued to ease, while earnings from the nation's largest banks reinforced the strength of capital markets. At the same time, investors kept one eye on the Middle East as the U.

and Iran traded airstrikes again, adding to uncertainty around the Strait of Hormuz. West Texas Intermediate crude spiked 15. 5% last week to above $82 per barrel, while international benchmark Brent crude jumped nearly 16% to just above $88.

Economic Details

While those are big one-week moves, they finished well off their peaks at the height of the war as hopes for diplomacy persisted. We'll have to watch future economic reports to see if the renewed rise in oil prices stokes inflation. Beneath the surface last week, however, there was another sharp rotation within the artificial intelligence trade.

Investors shifted away from many semiconductor names and toward hyperscalers. Friday's market downturn left the S & P 500 off nearly 1. 6% for the week, while the tech-heavy Nasdaq fared worse, losing almost 3% last week.

Here's a closer look at what drove the trading action. IBM warning ripples IBM shocked Wall Street on Tuesday by pre-announcing disappointing second-quarter results , sending the stock down 25% for its worst day on record. CEO Arvind Krishna chalked up the softness to customers increasingly redirecting technology budgets toward cybersecurity, hardware, and AI tokens.

Analyst Views

That left less money for traditional software and consulting projects and pushed several large deals into future quarters. Jim didn't recommend buying the massive dip. No real recovery materialized.

IBM stock lost more than 26% for the week. The market quickly rewarded the beneficiaries of that shift in corporate spending. Club stocks CrowdStrike and Palo Alto Networks rallied roughly 12% and 7%, respectively, on Tuesday — and so did hardware and memory names such as Dell and Micron .

Earlier this year, cybersecurity stocks came under pressure due to concerns that AI would disrupt the industry. IBM's commentary reinforced our view that the opposite is happening: AI is driving incremental demand for cybersecurity as companies work to secure increasingly complex AI infrastructure and applications. Palo Alto and CrowdStrike were our two best performers in the Club portfolio this week.

Economists are analysing what the news means for the markets.