Morning market setup: AI momentum runs into tariff headwinds

Introduction#

The first cash session of the back half of the week arrives with the major U.S. benchmarks sitting at or near all-time highs and an unusual cocktail of forces tugging at sentiment. According to Monexa AI, the S&P 500 (^SPX) closed Wednesday at 6,263.26, a fresh record after a +0.61% gain, while the NASDAQ Composite (^IXIC) ended at 20,611.34, up +0.94%. Behind the euphoria sits a market that is pricing ever-higher expectations for artificial-intelligence spending, exemplified by NVDA stealing a brief glance above a $4 trillion valuation, even as Washington rolled out a 50% tariff on Brazilian imports and threatened steeper duties on key Asian partners.

Overnight, traders digested a mixed bag of headlines: the DAX touched another record, the FTSE 100 powered through its own high on metals strength, and the United Arab Emirates floated a post-2027 crude-capacity expansion should the market demand it. Asia ended with a cautiously positive tone, though Japan’s Nikkei slipped on fresh tariff anxiety. Against that backdrop, S&P 500 equity futures are modestly softer, and volatility gauges such as the CBOE VIX remain pinned near year-to-date lows, suggesting traders still see each policy flare-up as just another speed bump on the AI super-highway.

Market Overview#

Yesterday’s Close Recap#

Wednesday’s advance was once again powered by the AI trade. A nearly two-point contribution from NVDA alone accounted for more than half of the S&P’s net move, while large-cap peers such as GOOG, GOOGL and META padded the tech-heavy NASDAQ. Defensive leadership emerged from Utilities, where takeover chatter around AES spurred a sector-wide squeeze. At the other end of the spectrum, Consumer Defensive names stumbled as profit-taking hit staples like HSY and MNST.

Overnight Developments#

European bourses opened on a firmer footing after Asia’s modest rebound, though the bid lost momentum as headlines trickled out of Washington hinting at fresh duties on steel and autos. The FTSE 100 broke 8,960 before settling near 8,930 as mining majors rode a fresh pop in copper, itself fueled by tariff-related supply fears. In fixed income, 10-year Treasury yields hover at 4.18%, barely changed, while the dollar drifts lower on what Brown Brothers Harriman characterises as a loss of confidence in U.S. trade stewardship.

In commodities, gold futures edge higher to $3,332/oz but remain trapped in a $150 range, whereas WTI crude flirts with $83/bbl after the UAE’s capacity comments offset a slightly larger-than-expected build in U.S. stockpiles. Bitcoin trades just shy of $111k following institutional inflows but is capped by the same tariff rhetoric pressuring risk assets elsewhere.

Macro Analysis#

Economic Indicators to Watch#

Thursday’s domestic calendar is light, leaving traders to focus on Friday’s June Producer Price Index, where consensus sees a soft +0.1% monthly print that would support the “two cuts by December” narrative embedded in Fed-fund futures. Weekly jobless claims arrive at 8:30 a.m. ET; anything north of 245k could rekindle recession chatter, while a downside surprise would buttress Goldman Sachs’ contention that job security remains robust. Further out, July’s CPI looms large (due next Wednesday) and could be the linchpin for whether the Fed delivers its first cut at the September FOMC.

Global / Geopolitical Factors#

Trade policy dominates the risk docket. President Trump’s latest salvo—a 50% tariff on Brazilian goods and an explicit threat to target Japanese autos—extends a pattern of eleventh-hour letters designed to extract concessions before the self-imposed August 1 deadline. UBS warns that credit spreads near year-to-date tights leave little margin for error should investors finally decide headline risk matters. Meanwhile, OPEC+ representatives in Vienna conceded that “geopolitical volatility is a challenge,” but oil traders appear more concerned about the demand side than supply given last week’s larger-than-forecast gasoline build.

Sector Analysis#

Sector Performance Table (Wednesday Close)#

What Is Driving Sector Rotation?#

Wednesday’s leadership hierarchy underscored a barbell mentality. On one side, Utilities caught a bid from both M&A chatter (the AES surge) and the search for safe yield with long bonds anchored. On the other, Communication Services and Technology extended their AI-fueled march thanks to chip and platform names. The underperformance of Consumer Cyclical and Defensive groups suggests investors are cooling on both discretionary spending proxies and staples after a strong six-week stretch, possibly reallocating capital toward interest-rate-sensitive winners ahead of what many expect will be a benign PPI and dovish Fed pivot.

Energy’s weakness, despite firm crude, is best explained by the internal split: renewables such as ENPH added nearly five points, but integrateds like COP and services plays like BKR fell on concerns that copper tariffs foreshadow broader metals levies that could stifle global capex and hence fuel demand.

Company-Specific Insights#

Earnings and Key Movers#

• Thursday’s earnings slate is light, but focus rests on WBS after-the-bell. Consensus expects EPS of $1.54 on revenue of $1.68 billion. UBS boosted its target to $69 (from $68) on confidence that rising commercial loan growth offsets deposit-beta creep. A beat could reinforce the mini-bid in regional banks seen since mid-June.

• In tech, NVDA grabbed another +1.80% Wednesday, briefly pushing past the $4 trillion market-cap line and drawing a fresh $185 target from Goldman Sachs. Overnight chatter centred on whether new export-control carve-outs for Blackwell-class GPUs open additional upside, or whether Beijing’s mooted retaliatory levies on U.S. cloud services trim demand. For now, liquidity remains abundant: option open interest on the $180 weekly calls now exceeds 420k contracts.

• Semiconductor supply partner TSM reported a 39% year-on-year revenue surge to NT$933.8 billion, topping LSEG consensus and its own mid-guidance. The Taiwanese giant reiterated “AI demand continues to outpace supply,” but CFO Wendell Huang conceded that “tariff chatter adds cost noise” to second-half gross-margin planning. U.S. investors will see the ADR reaction on Friday given Taiwan’s market holiday tonight.

• Homebuilders stayed bid: DHI added +5.36%, PHM +4.49% and LEN +4.47% after mortgage-rate lock volumes improved for a third straight week. Wells Fargo raised its 2025 housing-start forecast to 1.46 million, citing resilient household formation despite 6.8% 30-year fixed rates.

• Within Utilities, NEE closed +1.64% after a Bloomberg piece suggested Florida regulators may fast-track solar-infrastructure cost recovery under the new OBBB Act, partly offsetting the legislation’s rollback of residential credits. Elsewhere, CEG added +1.36% ahead of Friday’s leveraged ETF launch that will provide traders with a single-stock instrument on the nuclear-heavy utility.

• Cryptocurrency exchange COIN tacked on +5.36% as Bitcoin flirted with new highs. Analysts attribute the move to institutional fund flows, including a 60 bp allocation shift in a large U.S. pension plan disclosed late Tuesday.

• Defensive laggard HSY fell –4.70% in its worst single-day slide since November 2024. Volume was 2.4× the 20-day average as price action confirmed a break below the 200-day moving average. Deutsche Bank called it “mechanical unwind” tied to a systematic-momentum basket, but discretionary sellers cited freight-cost inflation embedded in cocoa derivative contracts.

Conclusion#

Morning Recap and Outlook#

The pre-open landscape once again pits relentless AI optimism against a revived tariff tape bomb. With equity vol suppressed and bonds calm, the burden of proof now rests with bears arguing valuations are “priced to perfection.” Key catalysts for the session include weekly claims at 8:30 a.m., any incremental tariff commentary out of the White House press pool, and continued Fed-speak—Governor Jefferson takes the podium at noon on “Balanced Risks.” Should claims print in line with trend and tariffs stay rhetorical, the path of least resistance is still higher for beta and megacap tech. Conversely, a data or policy shock could see the first meaningful volatility pop since mid-May.

Actionable watch items:

1. Track 6,269 on ^SPX—Wednesday’s intraday high—as near-term resistance. A clean break could invite program momentum targeting the Sevens Report’s 6,343 upside band. Failure puts 6,231 gap support back in play.
2. Monitor NVDA at the psychological $165 handle. Gamma exposure suggests an outsized dealer hedge requirement through Friday’s expiry.
3. Keep an eye on Utilities: takeover chatter and falling yields could spark fresh rotation into AES peers such as VST and D.
4. For Energy, a daily close for WTI below $82 might deepen the divergence between fossil fuels and renewable winners like ENPH.

With positioning still long-tech and short-vol, the market appears comfortable swimming in shallow tariff waters while surfing an AI swell. Whether today marks another push toward the Sevens Report’s 6,269 midpoint—or the moment traders finally price in policy risk—will hinge less on fresh headlines and more on whether the incremental buyer remains willing to pay up at peak optimism. For now, the bias is cautiously constructive, but tail-risk hedges look increasingly inexpensive relative to index price level, offering a cheap insurance policy for investors who believe August’s tariff deadline could yet sour the summer rally.