Weekly Market Update July 6, 2026

The gross domestic product (GDP) increased by an estimated 2.1% in the first quarter. The final reading was revised higher (from 1.6%), primarily reflecting a jump in private domestic investment. Massive spending on artificial intelligence (AI) played a significant role in the GDP advance. However, personal consumption, the largest contributor to GDP, increased just 0.5%, and residential construction fell 7.8%. The slowing rate of personal consumption was likely due to the reacceleration in the pace of price growth. 

Inflation remains the big worry for the Federal Reserve. The Personal Consumption Expenditures (PCE) Price Index rose sharply in May. Specifically, the PCE and core PCE, which excludes the more-volatile food and energy components, jumped 4.1% and 3.4%, respectively, in the 12-month period ended May 31st. On the encouraging side, oil prices, which played a notable role in the May number, fell sharply in June on hopes of a deal to end the war in Iran. Nevertheless, half of the Federal Open Market Committee (FOMC) voting members still expect at least one interest-rate hike this year. 

Meanwhile, second-quarter earnings season is set to commence. The major banks get the ball rolling on July 14th. The bank results and accompanying management commentaries will provide clues about the state of the U.S. economy. In general, Wall Street is expecting a strong performance from Corporate America, with profit growth for the S&P 500 companies estimated to exceed 20%, compared with a year earlier. 

But questions remain about when the massive spending on AI will begin to produce tangible revenue results. This year, Big Tech is expected to commit over $1 trillion to data center construction and memory processing chips. A recent report from the Bank for International Settlements (BIS) warned that the heavy reliance on debt financing and private credit to fund this initiative could cause a credit crunch and a recession down the road if financial returns were to fall short of expectations. Additionally, some companies’ profit margins could be pressured as costs for memory and other chips soar. 

Conclusion: Investors should continue to hold high-growth technology stocks. However, a broader selection of equity groups in one’s portfolio might limit the downside risk if fears of an AI spending bubble were to gain traction.

Source: Valueline.com