The Fed Got Relief. Chips Didn't.
GOOD MORNING, U.S. markets were closed Friday for the Independence Day holiday, so the weekend setup comes from Thursday’s final tape. The macro side improved: June payrolls rose by just 57,000, sharply below expectations, cutting near-term Fed-hike odds and pulling the dollar lower. Oil also finished Friday near pre-war levels as U.S.-Iran talks kept hopes for a fuller reopening of Hormuz alive. Yet semiconductor stocks still ended the shortened week under heavy pressure. Easier rates and cheaper oil should help growth valuations. The fact that they did not rescue chips tells you the AI trade is wrestling with a problem of its own. MARKETS | TLDR
FEDThe Jobs Report Just Took Some Pressure Off the FedThe U.S. economy added only 57,000 jobs in June, roughly half the 110,000 increase economists surveyed by Reuters had expected. May’s gain was also revised lower, while the unemployment rate came in at 4.2%. The report interrupted a run of firmer labor data and immediately pushed markets toward a less aggressive Fed path. That matters because the market had spent much of June pricing the risk that sticky inflation and resilient growth would force another rate increase. A visibly softer labor market gives policymakers more room to wait, especially with oil back near levels seen before the Iran war began. The dollar fell after the report, while rate-hike expectations were marked down. But the signal is not unambiguously dovish. The unemployment rate was helped by weaker labor-force participation, and inflation remains above the Fed’s target. The jobs report reduced the urgency to tighten; it did not create a case for easy policy. For equities, the more interesting point was what failed to happen: chip stocks still sold off hard even as the rate backdrop improved. SEMICONDUCTORSFed Relief Wasn't Enough to Fix the Chip TradeThe Philadelphia Semiconductor Index fell 5.5% Thursday, extending a brutal two-day slide after a 6.3% drop Wednesday. South Korea’s KOSPI also plunged nearly 8% as semiconductor-heavy markets absorbed profit-taking, leveraged positioning and new questions about the economics of the AI infrastructure buildout. The selloff matters because the macro conditions were actually becoming friendlier. Jobs slowed, the dollar weakened and oil fell toward four-month lows. Those are normally supportive inputs for long-duration growth stocks. The fact that semiconductors still struggled suggests the immediate pressure was coming from inside the trade itself: crowded positioning, elevated valuations and anxiety over whether hyperscalers have built more compute capacity than they can productively use. Meta’s reported plan to sell excess AI computing capacity through a cloud business captured that concern perfectly. The plan could improve Meta’s returns on infrastructure, but it also raises a question for the broader AI supply chain: if the largest buyers of chips begin reselling spare capacity, how much incremental hardware demand should investors assume? The next test is earnings, not the Fed. HEADLINES
UPCOMING
DEEP INSIGTHSSoft Jobs, Hard ChoicesReuters’ Morning Bid captures the unusual combination heading into the holiday weekend: payroll growth slowed sharply and global stocks had their best week since May, yet investors were still rotating out of AI-linked equities. The useful takeaway is that rate relief and weaker macro data do not automatically repair an overextended sector trade. Meta Is Building a Cloud Business to Sell Excess AI CapacityThis is the deeper structural question behind the semiconductor weakness. Selling excess compute could make Meta’s infrastructure more productive, but it also suggests hyperscalers are starting to manage AI capacity as an asset rather than simply consume it internally. That shift could change both the economics of neocloud providers and assumptions about how quickly fresh hardware demand must keep growing. |