AI Is Keeping Wall Street Afloat. Rates, Oil and Breadth Tell a Less Healthy Market Story.
Week 28 · 6–10 July 2026
S&P 500 and Nasdaq advance, but the Dow and small caps retreat; Europe corrects, Treasuries lose ground, and geopolitical risk re-emerges through the energy channel. The regime remains risk-on, but it is more concentrated and more sensitive to inflation data.
What Week 28 is really saying: an increasingly concentrated rally
Week 28 does not signal the end of the rally. It does signal, however, that the rally is becoming increasingly dependent on a narrow group of stocks and a specific narrative: artificial intelligence, semiconductors, and earnings growth. Outside that perimeter, the picture is far less encouraging.
Wall Street absorbed a week marked by renewed US–Iran tensions, rising oil prices, and a more hawkish-than-expected set of Federal Reserve minutes. The fact that the S&P 500 and Nasdaq still closed in positive territory confirms the market's resilience. However, this does not justify describing the move as broad or linear: the Dow Jones and Russell 2000 declined, Europe lost ground, and bond yields rose.
Risk-on yes, but only in technology and semiconductors
Risk appetite remains active, but is concentrating in technology, semiconductors, and companies with strong earnings visibility.
Higher oil prices, restrictive Fed minutes, and Treasury selling are bringing the cost of capital back to the centre of the picture.
The divergence between Nasdaq/S&P and Dow/Russell points to lower market participation compared with the previous week.
1. The shift from Week 27
In the previous week, the US rally had been more uniform across the major large-cap indices: the Dow, S&P 500, and Nasdaq had all gained between 1.8% and 2.1%, while small caps had already lagged. In Week 28, leadership narrows further: Nasdaq and S&P remain in positive territory, while the Dow and Russell close in the red.
| US Index | Week 27 | Week 28 | Reading |
|---|---|---|---|
| Nasdaq Composite | +2,1% | +1,74% | Leadership confirmed by AI and semiconductors. |
| S&P 500 | +1,8% | +1,23% | Resilient, but driven primarily by growth segments. |
| Dow Jones | +2,0% | −0,50% | The four-week winning streak comes to an end. |
| Russell 2000 | −0,5% | −0,61% | The failure of small caps to participate remains the key weak point. |
2. United States: technology dominant, breadth less convincing
The Nasdaq led the week with a gain of 1.74%, followed by the S&P 500 at +1.23%. Growth stocks decisively outperformed value. At the sector level, Information Technology posted the best performance; energy and communication services participated in the advance, while materials and healthcare ranked at the bottom.
This combination is consistent with a market that continues to pay up for visible growth and the ability to translate AI investment into revenues and margins. At the same time, the decline in the Dow and Russell 2000 shows that the market is not delivering a broad-based confirmation on the cyclicality and diffuse growth front.
The bars represent the relative magnitude of weekly moves and do not share a common absolute scale between positive and negative values.
3. Federal Reserve and fixed income: the market has stopped expecting an accommodative Fed
The minutes of the 16–17 June meeting revealed a more divided Committee, with greater concern over inflation. Some members had considered the possibility of a rate hike, while ultimately supporting the decision to hold rates steady. The majority favoured removing from the statement the language implying a preference for future easing.
The bond market reacted accordingly: the ten-year Treasury yield rose to 4.56% from 4.49%, and the two-year to 4.20% from 4.14%. This is not a disorderly move, but it is sufficient to serve as a reminder that equity markets are rallying against a high discount rate, not on the back of yield compression.
| Variable | Close Week 28 | Week 27 | Change | Interpretation |
|---|---|---|---|---|
| US Treasury 2Y | 4,20% | 4,14% | +6 bps | Monetary policy expectations shift more restrictive. |
| US Treasury 10Y | 4,56% | 4,49% | +7 bps | Inflation and energy risk premium rising. |
| US Treasury 30Y | 5,06% | 4,99% | +7 bps | Persistent pressure on the long end of the curve. |
| Dollar Index | 100,78 | 100,86 | −0,08 | Dollar broadly stable, with no generalised flight to liquidity. |
| CRB Commodities | 368,51 | 353,03 | +4,4% | Return of the inflationary premium on raw materials. |
| Gold | 4.117,80 | 4.125,70 | −0,2% | Geopolitical factors offset by higher real yields. |
| Oil | 71,05 | 68,69 | +3,4% | Iran/Hormuz risk re-emerges as a driver of the energy premium. |
4. US Macro: growth still positive, but the margin for error is narrowing
The ISM Services index edged down marginally to 54.0 from 54.5, remaining in expansion territory for the twenty-fourth consecutive month. Initial jobless claims held at a contained 215,000, while continuing claims rose to 1.814 million. Existing home sales declined 2.4%, to an annualised rate of 4.09 million.
The macro message remains consistent with positive growth, but not with a Fed free to underpin markets. Services demand is holding up, the labour market is not collapsing, and energy could reignite headline inflation. For equities, this means that the next leg of the rally must be justified by earnings, not by hopes of lower rates.
5. Europe: the correction is sharper and more consistent with the rise in rates
The STOXX Europe 600 fell 1.79%, breaking its prior positive streak. The DAX shed 2.76%, the CAC 40 lost 1.99%, and the FTSE 100 declined 1.70%. The FTSE MIB limited its decline to 0.39%, showing relatively stronger resilience.
Europe was penalised by the most uncomfortable combination for its sectoral mix: rising oil and gas prices, less accommodative monetary policy expectations, and lower exposure to the AI mega-caps supporting Wall Street. The US–Europe performance differential has consequently reopened decisively.
| Area / Index | Week 28 | Signal |
|---|---|---|
| STOXX Europe 600 | −1,79% | Broad-based pressure on Europe and cyclical duration. |
| DAX | −2,76% | The German market is weighed down by energy and rates repricing. |
| CAC 40 | −1,99% | Weakness among European large caps. |
| FTSE MIB | −0,39% | Best relative resilience within the European group. |
| Nikkei 225 | −1,70% | Imported energy costs and profit-taking in technology. |
| TOPIX | −0,70% | More contained correction relative to the Nikkei. |
| CSI 300 | −1,27% | Narrow AI rally insufficient to support the domestic market. |
| Shanghai Composite | −1,17% | Domestic demand still unconvincing. |
| Hang Seng | +3,53% | Internet, healthcare and materials drive Hong Kong higher. |
6. Asia: Hong Kong is the exception, not the rule
Japan closed lower, with the Nikkei at −1.70% and the TOPIX at −0.70%. The ten-year JGB yield ended the week around 2.78%, having touched its highest level since 1996 intra-week. The yen returned to around 161 against the dollar.
In China, the CSI 300 and the Shanghai Composite both declined, despite a highly concentrated surge in AI and technological self-sufficiency themes. Hong Kong, by contrast, gained 3.53%. The divergence confirms that the Chinese market is not pricing in a broad-based acceleration in domestic demand: it is selectively targeting individual technology clusters and major internet platforms.
7. Risk Map for Week 29
Next week concentrates three simultaneous tests: US inflation, the start of earnings season, and confirmation of global semiconductor demand. CPI, PPI and retail sales will define the Federal Reserve's room for manoeuvre; the major banks will gauge the quality of the domestic cycle; TSMC and ASML will put the sustainability of AI expectations to the test.
Manageable inflation, solid earnings, 10Y Treasury below the 4.65% area.
CPI below expectations and robust guidance from banks and semiconductor companies.
A new oil shock or higher-than-expected inflation, with the 10Y beyond 4.65–4.70%.
Probabilities represent a discretionary scenario assessment and not a statistical forecast.
Final Summary
The market is not in risk-off mode. But neither is it in a healthy, broad-based rally. Leadership has returned to concentrating on AI, semiconductors and mega-caps, while rates, oil, Europe and small caps signal a more fragile environment.
The deciding factor for Week 29 will be straightforward: if earnings and inflation allow the 10-year Treasury to remain under control, risk-on can continue. If the cost of capital keeps rising, the concentration that is currently supporting the indices will become their primary point of vulnerability.
Sources & Methodology
- T. Rowe Price, Global Markets Weekly Update, 10 July 2026: weekly performance for the US, Europe, Japan and China; sectors; macro data and Treasuries.
- Federal Reserve Board, FOMC meeting minutes of 16–17 June 2026, published 8 July 2026.
- Washington Trust Bank, Fixed Income & Equities Markets Week in Review, 10 July 2026: Treasury curve, dollar, CRB, gold and oil.
- Associated Press and Reuters, closing prices of 2 and 10 July 2026: Week 27 / Week 28 comparison and key market drivers.
- CaixaBank Research, Financial Markets Daily Report, 10 July 2026: cross-asset reading and reaction to geopolitical tensions, oil and bonds.
Author: Fabrizio Ravetto.
Disclaimer. This content is intended solely for informational and market analysis purposes. It does not constitute personalised financial advice, a public solicitation of savings or an individual investment recommendation. Any operational decision must be assessed in light of one's own risk profile, time horizon and financial position.
Transparency. Content produced with the support of artificial intelligence.