AI drives midday gains as tariffs hover and Fed outlook steadies

Introduction#

Wednesday’s session opened with a cautiously positive tone and, by midday, the major averages were still hugging green territory. The S&P 500 remains within two-dozen points of its all-time high, supported by a fresh wave of enthusiasm for artificial-intelligence infrastructure plays and a flurry of broker upgrades. At the same time, traders continue to digest President Trump’s escalating tariff rhetoric and the growing chorus of strategists—most recently Goldman Sachs’ David Kostin—calling for as many as three Federal Reserve rate cuts before year-end. The push-and-pull between an AI-powered risk bid and macro uncertainty has translated into selective strength rather than an outright broad-based rally.

Market Overview#

Intraday Indices Table & Commentary#

Tech remains the clear pace-setter. According to Bloomberg data, the NASDAQ Composite punched through 20,600 in early trade—its highest intraday print ever—before settling back toward 20,550 as profit-taking emerged in a handful of high-beta software names. Meanwhile, defensives such as consumer staples and utilities are seeing only sporadic interest despite the day’s macro noise, a sign that investors still view tariff risk and policy uncertainty as manageable in the near term. Volatility proxies continue to bleed lower; the CBOE Volatility Index is flirting with its year-to-date low at 15.9, suggesting options markets are priced for stability through the next data calendar.

Macro Analysis#

Economic Releases & Policy Updates#

Mid-morning brought a modestly softer read on May wholesale inventories (-0.3% m/m) from the U.S. Census Bureau, a figure that trims Q2 GDP trackers by only a tenth but reinforces the view that supply chains remain lean. Commenting on the print, economists at Reuters noted that inventory-to-sales ratios are back at 20-year lows, giving corporates wiggle room to rebuild stock later in the year—potentially a mild tailwind for H2 production. Attention now shifts to this afternoon’s FOMC minutes for hints on how seriously policymakers are entertaining a September cut.

Global/Geopolitical Developments#

Overnight, Asia traded sideways after Beijing’s consumer-price index showed only a tepid 0.3% y/y increase. Coupled with Australia’s surprise decision to hold rates, the data reinforced the notion that disinflationary trends abroad are still in play even as U.S. tariffs loom. President Trump reiterated that the August 1 deadline on reciprocal tariffs is “a clarification, not a delay,” and warned some partners could face duties as high as 80%. Despite those headline risks, the U.S. Dollar Index is up only 0.1% intraday, reflecting a market that sees the Fed rather than trade policy as the dominant macro catalyst.

Sector Analysis#

Sector Performance Table#

Communication-services names dominate the leaderboard as mega-caps META and the two Alphabet share classes (GOOG and GOOGL each tack on nearly +2%. According to Bloomberg, European regulators’ latest antitrust threats against Google are being shrugged off as investors focus on the group’s widening AI moat. The surprise runner-up is Utilities, powered by a +17% surge in AES after management guided to double-digit earnings growth tied to its battery-storage pipeline.

Technology’s slim gain masks a pronounced intraday divergence. Chip titan NVDA briefly achieved a $4 trillion market value—the first company ever to do so—yet software consultant ACN and analytics provider FICO are sliding more than -2% and -5% respectively as investors rotate toward hardware beneficiaries of the AI build-out.

On the downside, Consumer Defensive stocks are under meaningful pressure. Staples bellwethers HSY (-4.7%) and MO (-3.8%) are suffering from a one-two punch of elevated cocoa prices and renewed litigation chatter around flavored-vape products.

Company-Specific Insights#

Midday Earnings or Key Movers#

The tape is littered with analyst actions, and the market reaction underscores how selective investors are willing to be.

MSFT is up a little over +2% after Oppenheimer upgraded the name to Outperform, arguing that Azure’s AI attach rates are not yet baked into consensus. Oppenheimer now models fiscal-2026 AI revenue topping $120 billion, roughly 10 percentage points higher than the sell-side median.

Industrial bellwether CAT is punching to a six-week high after Melius raised its rating to Buy and set a $500 target, citing the company’s growing footprint in data-center power generation. Traders note that options volume in CAT calls has already reached 180% of the 20-day average by midday, pointing to fresh speculative interest.

The residential-solar space is living up to its high-beta reputation. RUN has rebounded almost +9% after Jefferies reversed a long-held Underperform stance, highlighting the policy clarity embedded in Washington’s new One Big Beautiful Bill Act.

Conversely, ILMN is down more than -3% following Citi’s downgrade to Sell. Analysts warn that a softer academic-funding backdrop and sluggish Chinese demand make a second-half recovery unlikely. The note also points to looming price reductions on genome sequencers as a margin headwind.

Airlines are mixed ahead of tomorrow’s earnings from DAL. The stock is off -0.3%, with traders flagging higher jet-fuel prices stemming from Brent crude’s move north of $86/bbl. Wolfe’s desk nonetheless says buy-side positioning looks underweight, meaning a modest beat could trigger short-covering.

Elsewhere, CVNA remains volatile, gaining just over +1% despite a reiterated Sell at Citigroup. Used-car benchmark pricing is up +6.3% y/y, according to Cox Automotive, but Citi argues that tougher credit standards and rising inventory at traditional dealers cap upside.

Extended Analysis#

Intraday Shifts & Momentum#

The morning’s rally started as a continuation of Tuesday’s afternoon rebound when Nvidia headlines first hit the tape. Futures carried that momentum into the cash open, lifting the S&P 500 above 6,260 before sellers emerged in overbought pockets of software and discretionary retail. From 10:30 a.m. onward, breadth contracted, as evidenced by advancers vs. decliners on the NYSE slipping to 1.1 to 1 from an early peak of 1.4 to 1. Notably, the market is rewarding names with either direct exposure to AI infrastructure or visible cost pass-through mechanisms shielding them from tariffs.

In the rate space, ten-year Treasury yields are holding at 4.23%, essentially flat on the session. According to Bloomberg, the morning’s $38 billion 10-year auction tailed by a modest 1.3 basis points, reinforcing chatter that foreign demand is taking a cautious stance ahead of Friday’s CPI data. A constructive read of the minutes—specifically any language that underscores a July hold but signals openness to cutting by September—could steepen the curve into the close, offering incremental support to the banks.

Commodity markets are digesting the White House’s latest trade salvos. Copper futures are off -1.1% intraday after setting a fresh record Tuesday on tariff headlines. Strategists at Goldman Sachs remind clients that tariffs do little to change the physical tightness in the market; they simply alter where smelters ship tonnage. Nonetheless, today’s pullback is weighing on miners such as NEM, down -1.6%.

Crypto is quietly firmer. Bitcoin is up +0.4% to $108,700, mirroring Coinbase’s +2.5% gain. With the so-called “Crypto Week” regulatory push kicking off on July 14, desks report minimal short-term hedging—a potential sign of complacency heading into a policy-heavy news cycle.

Conclusion#

Midday Recap & Afternoon Outlook#

Equities remain underpinned by a simple equation: AI equals growth, everything else equals wait-and-see. As long as companies like NVDA, MSFT, and CAT print ever-bigger numbers tied to the data-center build-out, investors appear willing to look past tariff warnings and the gnawing possibility of second-half inflation. That said, sector rotation is intensifying; defensive mainstays are losing their shelter status while utilities suddenly behave like growth proxies.

Into the afternoon, the focus narrows to two items. First, traders will parse the FOMC minutes for clues on whether the Fed is shifting from “higher for longer” to a readiness to pre-empt tariff-driven price pressures with rate cuts. Second, any fresh comments out of the White House on the scope of August 1 levies could determine whether risk appetite can weather the next headline twist.

In short, the market sits at an inflection point: if policymakers successfully thread the needle—allowing AI-related capex to flourish while containing inflation—today’s selective bid could broaden. If not, the sharp divergence visible on today’s sector map may widen further, making stock-picking and tactical rotation, rather than index beta, the smarter play for the remainder of the summer.

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Key Takeaways: The midday tape shows tech and communications in charge, powered by AI optimism and an ongoing melt-up in mega-cap names. Tariff chatter has yet to dent sentiment materially, but it is capping rallies in industrials and materials. Sector rotation favors AI infrastructure suppliers over defensive staples, and the bond market is poised for clarification from the Fed minutes. Stay nimble: headline risk remains elevated, but so does the earnings-visibility premium commanded by AI enablers.