Investors are now bracing for a packed week of earnings, economic data and congressional testimony from U.S. Federal Reserve Chair Kevin Warsh. Among the three major indexes, the tech-heavy Nasdaq led losses, followed by the S&P 500, while the Dow’s decline was cushioned by gains in energy stocks tracking the surge in crude prices due to restricted traffic through the Strait of Hormuz.
“Stocks really reached a high at the very end of May, driven mainly by semiconductors,” said Thomas Martin, senior portfolio manager at GLOBALT in Atlanta. “When you move something this far, this fast, you invite the question of how sustainable it is. If the market were cheap, it would be one thing. Now there is less cushion and a lot of unknowns.”
Amid sustained AI-driven momentum in recent months, chip stocks have led both rallies and selloffs. The Philadelphia Semiconductor index underperformed sharply, with SanDisk, Marvell Technology and Western Digital posting steep losses. U.S.-listed shares of South Korean chipmaker SK Hynix also declined after rising more than 12% during their Nasdaq debut on Friday.
Over the weekend, the U.S. and Iran exchanged heavy airstrikes, significantly escalating tensions and prompting Trump to revive the blockade on Iranian ports. The development raised concerns over stalled peace negotiations and pushed crude prices up 9.4%, fuelling fears that supply disruptions could translate into persistent inflationary pressures.
Warsh is scheduled to deliver his first semiannual testimony before Congress on Tuesday and Wednesday, where he is expected to address the inflationary implications of the conflict and outline the Fed’s policy outlook. Markets are currently pricing in at least one 25 basis point rate hike by the end of the year, according to LSEG data.Key economic data due this week includes the consumer price index and producer price index from the Labor Department, which will provide insight into inflation trends in June amid geopolitical volatility. The Commerce Department’s retail sales data will also offer clues on consumer resilience, given that consumption accounts for roughly 70% of the U.S. economy.According to preliminary data, the S&P 500 fell 60.21 points, or 0.79%, to close at 7,515.18. The Nasdaq Composite dropped 408.83 points, or 1.56%, to 25,872.77, while the Dow Jones Industrial Average declined 129.16 points, or 0.25%, to 52,507.85.
Major U.S. banks including Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Wells Fargo are set to report quarterly earnings on Tuesday, marking the unofficial start of the second-quarter earnings season.
“I wonder if the market will start to push back against the surge in corporate issuance to fund AI capex, which has been under scrutiny for some time,” said Ross Mayfield, investment strategy analyst at Baird. “It will be important to see how banks position themselves in corporate bonds and fixed income.”
Analysts currently expect aggregate second-quarter earnings growth for the S&P 500 at 23.7% year-on-year, up from 19.2% estimated at the start of April, according to LSEG.
