Markets had a difficult week. Spain had a considerably better Sunday.

David Halseth
6 days ago
2 min read

For week ended 7/18/26.

Before getting to inflation, oil prices and the latest AI-induced market indigestion, congratulations to Spain – the 2026 World Cup champions after a 1–0 extra-time victory over Argentina. At least someone finished the weekend at an all-time high.

Slumping chipmakers, renewed fighting in the Middle East, stubborn inflation and the increasingly plausible prospect of interest-rate hikes – investors had plenty to digest last week, and very little qualified as comfort food.

The S&P 500 lost another 1.6%, although some perspective is warranted: the index remains only about 1% below the record reached in June. This is volatility near the mountaintop, not a market tumbling into the abyss.

Technology stocks led the retreat after China’s Moonshot AI released Kimi K3, a powerful open-source artificial-intelligence model. The announcement intensified concerns that increasingly capable – and considerably cheaper – models could threaten the enormous capital-spending assumptions supporting today’s AI boom. The PHLX Semiconductor Index plunged 10% for the week, its worst performance since April 2025, and entered bear-market territory – down more than 20% from its recent high. Apparently, even artificial intelligence cannot make valuation risk disappear.

Meanwhile, June’s Consumer Price Index increased 3.5% from a year earlier, still elevated, but mercifully below May’s 4.2% reading. Unfortunately, some of that improvement reflected lower energy prices during the brief ceasefire with Iran.

As we all know, “ceasefire” has since become past tense.

Renewed hostilities between Washington and Tehran sent Brent crude roughly 16% higher so far in July. It finished Friday above $87 per barrel before climbing above $90 in Sunday-evening trading. Broader commodities gained 3.7% last week, bringing their 2026 return to an impressive 22.2%.

Higher oil prices do not automatically create sustained inflation, but they do affect gasoline, transportation, manufacturing costs and consumer expectations. In other words, June’s encouraging CPI report may already be looking in the rearview mirror.

That leaves Federal Reserve Chairman Kevin Warsh in an uncomfortable position. He told Congress the Fed has “no tolerance” for persistently elevated inflation and does not want to be in the bailout business. Further rate increases are no longer an especially remote possibility, nor should investors assume the traditional “Fed put” will quickly rescue markets.

And what protection did bonds provide as stocks fell? The broad bond market gained approximately 0.10% last week and is up a breathtaking 0.20% for the year.

Stocks declined, commodities surged and bonds barely budged. Diversification wasn’t dead last week – but it may have been out of the office.

And with that, good morning and stay cool out there.