by Michael P. Reinking, CFA - Sr. Market Strategist

Published on 7/30/26 (a/o 3:00 pm)

Back to markets, we are officially in the peak of earnings season, there was some key economic data, investors were still debating yesterday’s rate decision and then there were reports of a forced liquidation of what turned out to be a supernova hedge fund heavily exposed, and apparently levered, to the AI trade. Situational Awareness, was launched in 2024 with $225ml by former 24 year old OpenAI researcher. It had reportedly grown to >$40B and was up >400% at the end of June according to sources. Reportedly the firm had run up to 4X leverage and as the AI trade began to unwind and its positions were falling sharply it was facing margin calls. This morning the WSJ reported that Citadel had bought its levered positions, though the firm reportedly continues to hold cash backed positions and its ownership in Anthropic. Before discussing the implications the MAC Desk is demonstrating its Situational Awareness by tying together today’s two big headlines, the Jersey Shore and the Situation.

Shortly after the close yesterday, the mega-cap tech earnings began to roll in. Sentiment around Microsoft (+15%) has been negative recently but it is the star of the show today. Reporting solid numbers pretty much across the board. Azure growth came in ahead of estimates up 45% on a constant currency basis and the company highlighted Copilot adoption. The Capex guidance was largely inline with estimates while the company seemed to highlight some flexibility in that spending while the CFO noted the company would be FCF positive next year. For Meta (-10%) headline EPS was a miss but ex-items the results were a touch ahead of estimates while Q3 rev guidance disappointed. FCF was better than expected though. The company increased the bottom end of its Capex guidance to by $5B to $130 - $145B, and Mark Zuckerberg pushed back on the idea of the company leasing out compute capacity, prioritizing focusing on the long-term strategy as opposed to short term monetization. Samsung earnings overnight were pretty strong and there were a handful of other semi reports that were generally pretty strong as well.

 

The tech strength helped push futures higher overnight and there wasn’t much of a reaction to this morning’s economic data which was largely in line with expectations. However, as more details related to the Situational fund began to emerge so did the bid in the AI beneficiaries. Semis, memory and AI infrastructure stock (also helped by strong numbers from PWR) all have been rallying sharply throughout the session. The fund was heavily levered to the neoclouds and many of those stocks are up north of 20% (CRWV/SHAZ/NBIS/IREN etc.). Many affected stocks are up significantly since the start of the year but today’s rally only reverses the losses of the last couple of sessions (suggesting the street was sensing some blood in the water). Over the last week we’ve noted some of the software strength seemed to be de-grossing, well the fund also reportedly had short positions across this sector which is why we’re seeing it pullback today. At a high level I think this is contributing to the rotation in the market today as well, as traders feel like it is safe to get back involved in the tech waters - though there is still validity to the narratives that have been building and strains in the funding markets. As we head to print the S&P 500 is up >1.5%, though the equal weight version of the index is down modestly. Other major indices are up ~1%.

We’re following up yesterday’s Fed Day with a big morning for economic data. Headline June PCE fell 0.1% m.m, as expected, and down from last month’s 0.5%. Core rose 0.1% a tick below the 0.2% consensus and also down from last month’s 0.3% growth. This is another coolish inflation print following the last CPI and PPI prints and adds credence to the Fed’s decision to keep rates unchanged yesterday. Q2 GDP rose 1.5%, below estimates and last month’s 2.1%. Higher imports were the main drag, pulling GDP down over 1%, while Consumer Spending was strong, growing 3.2% (up from 0.5% last quarter) and contributing 2.0% to the overall growth (so, more than the total 1.5% growth). Non-residential equipment fixed-investment rose 15.2%, only slightly lower than last quarter’s 15.8%. Residential fixed investment rose 1.5%, turning positive after five straight quarters of decline. Personal Income rose 0.2%, slightly below consensus while Personal Spending was inline at 0.3%. Jobless claims continue to remain low. The 2y is down another 4bps, following yesterday’s drop. Longer-tenor yields are about unchanged, taking a breather after yesterday’s sprint higher. The US Dollar Index is falling sharply down ~1% as it appears there is some Yen intervention ahead of tonight’s BOJ rate with the Yen rallying to ~159 from 163. This has my antenna up in regard to potential carry trade unwinds especially given what’s been going on elsewhere (think back to August of 2024). However at least for the moment markets don’t seem to be focused on or concerned about this. 

Speaking of Japan, the Nikkei closed up 0.7% but most of the market was down, with notable weakness across financials while hard-hit tech names saw a bounce - Advantest +11%, Kioxia +3%. SoftBank dropped 3%, following ARM’s negative earnings reaction yesterday (-8%, SoftBank owns most of ARM). The BOJ’s policy decision is tonight, with consensus calling for a hold. The Japanese government lowered its FY26 GDP growth estimate from 1.3% to 0.9%, mostly on Middle East factors. China’s markets were mostly lower except for a modest gain in the Hang Seng. Semis and other AI-related stocks were under heavy pressure (Z.AI -17%, SMIC -8%). Zhongji Innolight, the largest new listing in Hong Kong since 2019 (it’s also listed in Shenzhen), fell 2% in its Hong Kong debut. Over in South Korea, Samsung fell 1% on its earnings and SK Hynix dropped 6% but the KOSPI was down only 1%. Samsung noted it expects memory shortages to persist through 2028 and worsen in 2027. It also said its not conducting a review of an US ADR listing at this time. European markets are higher this morning. Financials are strong across-the-board, along with miners and industrial/manufacturing names. Tech leaders ASML and Infineon are up 3-4%. The BOE followed the Fed’s lead and kept rates unchanged, as expected.  German Q2 GDP was better than expected (0.9% y.y vs 0.6% consensus and 0.7% prior), as was the Euro Area overall. European economic sentiment also beat and improved from the prior month. 

Crude is taking a breather after yesterday’s run higher, down about 1.5% despite the US launching retaliatory strikes against Iran (which President Trump said would happen yesterday). With the USD weakness we’re seeing metals bounce.  Gold held $4000 yesterday and is back ~$4,100 today. Copper is up ~2% reapproaching recent highs again. Crypto is moving modestly higher as well. 

The sector level activity in the S&P 500 is completely being driven by the tech trade and an unwind of some of the defensive sectors. 

After the close there is another round of mega-cap tech earnings and the oil major report tomorrow. Overnight the BOJ rate decision will be closely watched. In China PMIs will be released and there could be some headlines from the Politburo. US economic data include the Employee Cost Index, Chicago PMI and U of Mich Sentiment.   

After-market: AAPL, ADC, AEE, AGM, AMH, AMZN, ATR, AJG, AX, BFAM, COIN, CPT, CS.CN, CNO, CTVA, CUZ, CUBE, DLB, DXC, DXCM, EMN, EIX, EGO, ES, FHI, FND, FET, GDDY, HR, HTGC, HUN, IR, ILMN, INGM, LYV, MTZ, MTD, MTX, MHK, MSA, MSTR, OLN, KWR, RDDT, RBLX, RYAN, SAFE, SNDR, SPXC, SYK, VALE, WU, WY

Pre-Market: ABBV, AN, ARES, AU, BBUC, BEN, BEP, BSAC, CBOE, CHD, CL, CVX, D, ETN, FRT, GTES, LEA, LIN, LYB, MOG.A, MRNA, NVT, NWL, POR, PRLB, RBC, TROW, WT, XOM

US:

Global: