AI spending lifts sentiment as indexes test fresh highs

Introduction#

According to Monexa AI, the S&P 500 closed Wednesday at 6,358.91, a record finish after gaining +0.78%, yet the small-cap Russell 2000 remains well off its 2024 peak, reminding investors that breadth is still uneven. Overnight, the tone stayed constructive: Asian equities tracked Wall Street higher, Europe opened firmer, and the U.S. dollar drifted near five-week lows after the Turkish and Russian central banks both surprised with rate cuts. Closer to home, President Trump’s planned visit to the Federal Reserve’s renovation site is adding a layer of policy theater just hours before weekly jobless claims, July flash PMIs, and another deluge of earnings.

Market Overview#

Yesterday’s Close Recap#

Ticker	Closing Price	Price Change	% Change
^SPX	6,358.91	+49.29	+0.78%
^DJI	45,010.29	+507.85	+1.14%
^IXIC	21,020.02	+127.33	+0.61%
^NYA	20,902.91	+244.12	+1.18%
^RVX	22.90	–1.14	–4.74%
^VIX	15.20	–0.17	–1.11%

Large-cap momentum remains intact. Strength in megacap technology, healthcare equipment, and select industrials offset weakness in utilities and defensive staples. Volatility gauges (^VIX, ^RVX) slid for a third straight session, underscoring complacency, but the gap between the S&P’s all-time high and the Russell’s lag is widening—an historical precursor to either a catch-up rally or a broader pause.

Overnight Developments#

Asian trade was dominated by follow-through buying in Japanese banks after reports that Washington’s latest trade accord gives the Bank of Japan greater flexibility to normalize rates. Shanghai added more than +0.6% despite fresh property-sector downgrades. In Europe, the Stoxx 600 opened up roughly +0.3% as better-than-expected euro-zone composite PMI (51.1) tempered recession chatter. On the policy front, Ankara’s decision to cut its benchmark to 43% from 46% revived carry-trade appetite and pushed the lira to a three-month low. Russia’s move to ease by 50 bp likewise soothed emerging-market funding concerns.

On the corporate side, Alphabet rose more than 2% in Frankfurt after topping revenue estimates and hiking 2025 capex to $85 billion, validating the thesis that Gen-AI investment remains a non-discretionary spend for hyperscalers. Conversely, IBM slipped another 1% pre-European lunch after yesterday’s –5% post-market drop, as investors struggle with a soft software order book despite margin upside.

Macro Analysis#

Economic Indicators to Watch#

The first macro catalyst is the 08:30 ET release of weekly jobless claims. Consensus looks for 237,000, fractionally below last week’s 239,000 print. A downside surprise would extend the “soft-landing” narrative that has underpinned cyclicals, whereas a spike above 250,000 could rekindle recession alarms already fanned by headlines such as “Recession Risk in Autumn 2025 Rising With Tariff Uncertainty.”

Flash PMI data at 09:45 ET will be equally scrutinized. The manufacturing component bounced to 51.7 in June; economists polled by Bloomberg see a small pullback to 51.3. Services PMIs have held above 52 for three months—anything sub-50 would rattle rate-sensitive pockets like regional banks and REITs.

Finally, at 10:00 ET, investors hear from Fed Governor Adriana Wilkinson on financial stability risks. Her remarks come hours before President Trump tours the central bank’s $2.5 billion renovation—a photo-op critics say is designed to spotlight cost overruns and pressure Chair Powell ahead of September’s policy meeting. While no rate decision is imminent, swap pricing for the December FOMC slipped overnight, now discounting just 35 bp of cumulative easing versus 41 bp at Monday’s close.

Global/Geopolitical Factors#

Tariff brinkmanship remains in focus. Traders still await details of the President’s promised “big beautiful bill,” while surveys out of Europe and Asia suggest global manufacturers are adapting faster than feared. The weakening dollar, down roughly –3% month-to-date, is feeding a commodities bid that is boosting energy equities and pressuring importers. At the same time, the White House’s aggressive stance toward the Fed raises the specter of political interference, which historically widens Treasury term premiums and can spill over into equity risk premia.

Sector Analysis#

Sector	% Change (Close)
Energy	+1.13%
Technology	+0.27%
Communication Services	+0.10%
Financial Services	+0.10%
Healthcare	–0.01%
Industrials	–0.04%
Real Estate	–0.08%
Consumer Defensive	–0.16%
Consumer Cyclical	–0.18%
Basic Materials	–0.64%
Utilities	–1.71%

Energy finished on top, aided by Baker Hughes soaring +11.64% after a high-margin LNG contract and by Brent crude’s +1.2% bid on renewed Middle-East supply jitters. Technology’s slim gain masked violent rotation under the surface: TE Connectivity jumped +11.95% on upbeat auto-sensor demand, while Texas Instruments collapsed –13.34% as management warned that inventory digestion could last into early 2026. Utilities suffered the worst drawdown; NextEra Energy’s –6.09% slide illustrated how higher-for-longer discourse unnerves dividend investors.

Interestingly, Monexa AI’s heat-map flagged Healthcare as a pocket of strength with a notional +2.1% gain driven by Thermo Fisher +9.14% and Moderna +5.93%, a reading that conflicts with the sector-performance tally above, which shows a flat finish. The discrepancy likely stems from intraday reversals in managed-care stocks such as Centene –1.4% late-day that diluted earlier biotech enthusiasm. For traders, the takeaway is that leadership within Healthcare is fragmenting: lab equipment, diagnostics, and GLP-1-adjacent suppliers like West Pharmaceutical +3.84% are in favor, whereas traditional insurers face headline risk tied to rising medical-cost ratios and litigation.

Company-Specific Insights#

Earnings and Key Movers#

Earnings season enters its heaviest stretch. Overnight, the standouts were:

Alphabet (GOOGL delivered Q2 EPS of $2.31 versus $2.17 consensus on revenue of $96.43 billion. Management dialed 2025 capex up to roughly $85 billion—a 13% y/y jump—citing “unrelenting demand” for generative AI and cloud. The figure dwarfs earlier Street estimates ($73 billion) and lends weight to the view that hyperscalers will remain a structural bid for high-end compute. Traders immediately extrapolated the spend boost to chip suppliers; NVIDIA added +1.5% after hours, building on a +2.25% regular-session gain.

IBM printed EPS of $2.80 against a $2.65 target, yet shares fell over –5% pre-market as software sales missed by 220 bp and management struck a cautious tone on deal timing. Despite a 320 bp operating-margin expansion, investors want evidence that AI bookings translate into near-term license revenue, not just backlog growth.

Las Vegas Sands (LVS jumped +6% after revenue beat by $340 million and Singapore’s Marina Bay Sands generated record EBITDA. Investors appear willing to pay for Macau optionality even as Chinese tourist volumes remain 12% below 2019 levels.

O’Reilly Automotive (ORLY slipped –1% despite record EPS because management’s full-year sales outlook of $17.5–$17.8 billion missed the $17.94 billion whisper. The reaction reinforces a growing theme: investors are unforgiving when companies in traditionally defensive channels sound even mildly cautious on demand elasticity.

Chipotle Mexican Grill (CMG tumbled –10% late Wednesday after comparable sales fell –4.0% and guidance embedded flattish traffic for the rest of the year. The print contradicts recent credit-card-spend trackers that showed June quick-serve momentum and casts fresh doubt on discretionary dining.

Crown Castle (CCI rose +2% in thin pre-market trade after lifting 2025 AFFO guidance by $0.08 a share. The tower operator’s reiteration of mid-single-digit site-rental growth should reassure investors worried about 5G capex pauses from Tier-1 carriers.

Dow Inc. (DOW provided a more cautionary tale: the board halved its quarterly dividend to $0.35 amid a 7% top-line contraction and wider‐than-expected losses. Dividend yield seekers were quick to punish the stock; it fell –4% post release. The move underscores margin pressures across chemicals and raises the question whether other commodity producers could follow.

Movers to Watch at the Open#

• West Pharmaceutical guided higher for FY25 on surging GLP-1 injectable demand; the tape indicates a +4% bid in the first hour.

• Baker Hughes trades +1.2% pre-market, extending yesterday’s double-digit spike, as sell-side models bake in LNG backlog upgrades.

• Enphase Energy is indicated –3% after Wednesday’s –14% rout; European channel checks suggest rooftop-solar inventories remain bloated.

Conclusion#

Morning Recap and Outlook#

The ingredients for another risk-on open are in place. Alphabet’s confident AI-capex message offsets IBM’s software wobble, and overnight macro prints lean expansionary, not contractionary. Still, three friction points deserve vigilance:

First, breadth. Index levels look healthy, yet volatility in former leadership pockets—semicap equipment, discretionary restaurants, utilities—signals an internal churn that often presages consolidation.

Second, macro signaling. A claims surprise north of 250,000 or a PMI slip below the 50 break-even would resurrect fears that tariff disputes and student-loan-payment resumption are finally bleeding into labor demand.

Third, politics. The optics of a sitting president berating the Fed on its home turf elevate headline risk. Should bond yields lurch higher on any hint of policy meddling, long-duration sectors—tech, REITs—could feel an unwelcome repricing.

For investors, the playbook therefore tilts toward selective risk: lean into beneficiaries of confirmed spending waves—AI infrastructure enablers such as NVDA and cloud landlords like CCI—while fading ex-growth stories where valuation still implies flawless execution, as CMG illustrates. Meanwhile, watch the Healthcare sub-segments tied to GLP-1 delivery; West Pharma’s bullish raise suggests the market is underestimating the ripple effects of the obesity-drug boom.

The bottom line: momentum remains the market’s friend, but with policy risk percolating and breadth thinning, disciplined position sizing and a readiness to pivot on macro data will be crucial as we head into the back half of July. Stay nimble, keep one eye on the tape and the other on Washington, and use early strength to firm up hedges should today’s optimism hit an unexpected macro pothole.

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Prepared by Monexa AI. Data accurate as of 04:30 ET Thursday, July 24, 2025.