Late-session resilience: AI-powered rally tempers Fed-risk jitters

Introduction#

Thursday, July 17, 2025, started with a mild bid under equities and ended with an orderly but unmistakable push higher that left the major US benchmarks at, or within sight of, fresh records. The afternoon tape confirmed the market’s willingness to lean into the same catalysts it embraced at midday—rising AI-related capital spending, a decisive rotation into Energy and Industrials, and a belief that the Federal Reserve will cut rates later this month despite Washington’s growing scrutiny of the central bank. The S&P 500 (^SPX) added 33.64 points (+0.54%) to finish at 6,297.35, a new closing high. Gains were broad, though leadership was concentrated in sectors directly exposed to surging power demand from data-center build-outs and in rate-sensitive Financials that benefit from a flatter forward curve.

Market Overview#

Closing Indices Table & Analysis#

The decline in both the CBOE Volatility Index (^VIX) and the Russell 2000 Volatility Index (^RVX) underscores a buyers-of-dips psychology that persisted all afternoon. Options desks reported light demand for same-day downside hedges, consistent with the VIX finishing within a point of its 12-month low (15.53).

Under the surface, two cross-currents defined the session. First, AI-driven capex guidance continues to funnel capital toward chipmakers, hyperscale cloud providers, and—perhaps most conspicuously now—traditional energy producers positioned to meet a multiyear spike in power demand from data centers. Second, headline risk around Federal Reserve independence kept short-term Treasury yields choppy in morning trade, yet by the final hour the two-year note stabilized near 4.02%, allowing Financials to extend gains.

Macro Analysis#

Late-Breaking News & Economic Reports#

The macro calendar was light in the afternoon, but two developments influenced the tape:

• Fed Speak: Governor Christopher Waller reiterated that the labor market “is weaker than it looks” and signaled support for a July rate cut, adding that tariff-driven inflation is “not a worry.” His comments helped push the implied probability of a 25-basis-point cut at the July 31 FOMC meeting to 74% (CME FedWatch), up from 68% before the statement.

• Political Pressure on the Fed: Multiple headlines—ranging from President Trump’s suggestion he could fire Chair Powell to criticism of the Fed’s headquarters renovation—kept the topic of central-bank independence front and center. Bond traders initially demanded a premium, driving the two-year yield to an intraday high of 4.08%, but the move reversed as Waller’s dovish tone dominated.

Beyond those narratives, the lone hard data point was June Retail Sales, released before the open. The 0.6% month-over-month rise (versus 0.4% expected) reinforced the consumer-resilience theme that underpinned the market’s bullish bias all day.

Sector Analysis#

Sector Performance Table#

Energy’s 2.17% jump marks its best single-day gain in nearly two months, propelled by news that digital-infrastructure builders will quadruple power demand from data centers by 2030 (IEA). The domino effect is clear: more electrons require more drilling, transmission, and services. That backdrop explains why oil-field services leader SLB rose 0.23% to $34.67 ahead of tomorrow’s earnings call, even as crude prices settled flat.

Financial Services rallied 1.41%, aided by a steeper belly of the curve and constructive earnings from insurers. TRV gained 3.81% after reporting a core ROE of 18.8% and announcing a $2.4 billion divestiture of its Canadian unit. Large banks also participated: C added 3.41%, mirroring the sector ETF’s advance.

Technology’s 0.84% climb masked sharp dispersion: megacaps like MSFT (+1.20%) and ORCL (+3.09%) kept the group green, but semiconductor names such as MU (-2.72%) lagged on profit-taking after a torrid quarter.

Healthcare eked out a 0.29% gain thanks to a late-day bounce in JNJ (-1.09%) and IQV (+2.91%), offsetting a still-painful -8.52% plunge in ABT following in-line earnings but narrower guidance.

Utilities ended at the bottom (-0.62%) as investors rotated toward higher-beta cyclical groups. The move is consistent with a view that AI-driven demand will favor generation owners with merchant exposure rather than regulated rate bases.

Company-Specific Insights#

Late-Session Movers & Headlines#

Microsoft (MSFT closed at $511.70, extending its string of record closes to five sessions. The stock regained early afternoon momentum after Piper Sandler’s note circulating on trading desks emphasized “Azure spending intentions surpassing 80% of CIO surveys.” The report dovetails with the IEA’s data-center demand forecast and underscores why investors continue to fund Microsoft’s $80 billion capex cycle.

Oracle (ORCL rallied 3.09% to $248.75 and is now within 2% of joining the $700 billion-market-cap club. ScotiaBank highlighted Oracle’s differentiated AI infrastructure partnership with NVIDIA, a point reinforced by an afternoon press release from AI/R Company announcing an accelerated implementation of AI Agent Studio for Oracle Fusion clients.

PepsiCo (PEP reversed a morning selloff to finish 7.45% higher at $145.44 after management said on its conference call that “AI-optimized route logistics” shaved 20 basis points off distribution costs in Q2. The surprise margin tailwind led at least two sell-side desks to flag the stock as a defensive way to play AI-driven efficiency gains.

Elevance Health (ELV fell another 12.22% as earnings missed, citing higher Medicaid medical-cost trends. The slide weighed on Managed Care peers, but the broader market treated the miss as company-specific rather than systemic, in part because UBS reaffirmed its Buy on UNH and pointed to a “fundamentally different risk mix.”

Dell Technologies (DELL finished almost flat at $123.88 after after-hours Form 4 filings showed insider selling of 2,824 shares at $123.50. The modest size relative to daily volume muted any negative read-through. Street chatter centered instead on Dell’s Infrastructure Solutions Group posting a 12% YoY revenue gain, signaling resilient AI server demand.

Travelers (TRV added 3.81% following a beat on both net written premiums and investment income. The call emphasized that “reserve adequacy remains strong,” easing fears of surprise losses similar to those that hit the sector in 2023.

Extended Analysis#

End-of-Day Sentiment & Next-Day Indicators#

From a positioning standpoint, investor complacency looks elevated but is not yet extreme. The VIX’s close near 16.5 and a put-call ratio that dipped to 0.78 in late trade suggest limited desire to pay up for downside protection. Dealers report gamma exposure turning slightly long above 6,300 on the S&P 500, creating a mechanical cushion on shallow pullbacks.

Still, the market must negotiate a heavy catalyst calendar in the next 24 hours. Pre-bell earnings from SLB will test the AI-energy narrative. Consensus calls for EPS of $0.74 on $8.51 billion in revenue. Management’s commentary on its Digital & Integration segment—and how AI tools are being monetized in subsurface modeling—could shape sentiment not only for Energy but also for Infrastructure Software names.

On the macro side, June Industrial Production and the University of Michigan’s final July Consumer Sentiment are due at 10 a.m. ET. Economists look for production to rise 0.2%. A miss could amplify Waller’s assertion that the labor market—and by extension the economy—is weaker than headline prints imply, bolstering rate-cut odds.

Across the Atlantic, attention turns to the ECB’s Sintra remarks scheduled for the European morning. Any divergence between US and euro-zone policy paths can feed back into dollar dynamics, which, in turn, influence multinational earnings guidance.

Market Anomalies, Surges, and Sell-offs#

The standout anomaly was the 7.92% pop in SNA, pushing the toolmaker to an all-time high on no incremental news. Desk flows suggest discretionary macro funds have been using Snap-on as a proxy for reshoring and manufacturing-capex themes, both of which are seen as beneficiaries of AI-driven factory automation. Another eye-catcher was ETN up 4.91%, with buy-side feedback citing the company’s switchgear backlog and potential to supply data-center electrical balance of plant.

Conversely, ANSS slumped 4.69% after a boutique broker argued that its simulation software will face pricing pressure as open-source AI alternatives proliferate. The note weighed on mid-cap software names, though larger peers were insulated by scale advantages.

Conclusion#

Closing Recap & Future Outlook#

Equities left the trading day on solid footing, lifted by a classic risk-on trifecta: declining volatility, broadening sector participation, and reinforcing macro data (resilient retail sales). Yet the session also highlighted the market’s schizophrenia: investors are simultaneously celebrating AI’s demand super-cycle and brushing aside the specter of a politicized Federal Reserve. The tension will only intensify as we enter the heart of earnings season and edge closer to the July 31 FOMC decision.

For tomorrow, watch three pressure points:

1. Whether SLB confirms or tempers the AI-energy thesis.
2. The bond market’s reaction to industrial production; a downside surprise could reignite the rate-cut-now drumbeat.
3. Any further rhetoric from Capitol Hill or the White House pressing the Fed, which could revive volatility even as headline indices push into record territory.

Key Takeaways

• AI demand is no longer a Technology-only story; Energy and Industrials are emerging co-leaders as power infrastructure becomes the bottleneck.
• Political pressure on the Fed remains a persistent tail-risk, yet today’s price action shows investors still assign it a low probability of immediate disruption.
• Sector rotation into Financials and cyclicals suggests positioning for a soft-landing narrative, but stretched valuations leave little margin for macro disappointment.
• Volatility gauges point to complacency; hedging costs are relatively cheap should the macro or political backdrop deteriorate.

Tomorrow’s tape will reveal whether today’s enthusiasm has legs or whether caution re-enters ahead of the weekend, but for now the path of least resistance remains higher, powered by an AI spending boom that shows no sign of cooling.