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Analysis

Stocks Open the Second Half Lower as Warsh Takes the Sintra Stage

A record first half gave way to a more anxious second, as chip-stock profit-taking and a hawkish Fed chair's international debut set a cautious tone for July.

Market MunchiesΒ·Jul 1, 2026Β·5 min read
Stocks Open the Second Half Lower

Wall Street is opening the second half of 2026 on a cautious note. Futures slipped Wednesday morning as investors turned from celebrating a stellar first six months to bracing for a heavy stretch of data and central-bank commentary, with chipmakers leading the early pullback after their blowout first-half run.

The numbers behind the first half were remarkable. The S&P 500 and Nasdaq Composite rose roughly 14.9% and 21.4%, respectively, in the second quarter, their best three-month stretch since 2020, while the Dow gained about 13% for its best quarter since 2022. Semiconductors powered the rally: the VanEck Semiconductor ETF gained roughly 82% in the first half, its best since the fund launched in 2000, as optimism that artificial intelligence will drive years of corporate earnings growth sent chip stocks soaring despite an oil shock, Middle East tensions, and a sharp turn in the interest-rate outlook.

The chip pullback

That same sector is behind Wednesday's early weakness. Nasdaq 100 futures dropped roughly 0.9% and S&P 500 futures shed about 0.3% as investors took profits in chipmakers that had run hardest into quarter-end. Micron fell sharply in premarket trading despite still sitting on roughly a 300% year-to-date gain, and other AI-linked suppliers pulled back alongside it. It's a rotation, not a rout: strategists have described the moment as the sector "getting a bit too hot" after an AI-driven bull run, rather than a sign the trade is over.

Why the Fed is the bigger story

Layered on top of the profit-taking is a shift in the market's assumptions about the Federal Reserve. For most of the past year, the debate centered on when the Fed would cut. After Fed Chair Kevin Warsh's first policy meeting on June 17, which flipped the central bank's projections from a cut to a hike and stripped out any easing bias, the question has become when it will raise. Futures markets now price in better-than-even odds of an increase as soon as September, and some forecasters no longer expect any cuts until 2027.

Warsh makes his first major international appearance as Fed chair Wednesday, joining a moderated panel at the European Central Bank's forum in Sintra, Portugal, alongside ECB President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem. It's not a solo address β€” CNBC's Sara Eisen is moderating a discussion on inflation, growth, and AI's implications for financial stability β€” and Warsh has so far kept a notably stripped-down public style, avoiding the kind of detailed forward guidance his predecessor offered. Investors are watching closely anyway, for any hint on the path of rates.

The market's tell: currencies and yields

The clearest expression of the hawkish repricing is in the dollar, which hit a 40-year high against the Japanese yen Wednesday, trading as high as roughly 162.84, a move sharp enough to draw explicit intervention warnings from Tokyo. The euro and pound have also eased against the dollar. A stronger greenback, driven by higher U.S. yields and relentless demand for American assets amid the AI boom, is both a symptom of the hawkish repricing and a headwind for multinational earnings and commodity prices.

Bond yields reflect the same story. The 10-year Treasury yield has climbed toward roughly 4.47%, near a one-week high, as a Treasury selloff extends into a second day. Oil, meanwhile, has faded as a market driver, with crude hovering around $70 a barrel, back near where it traded before the Iran conflict flared. The Fed appears content to look through that energy relief and keep its guard up on inflation.

What to watch

  • Thursday's jobs report: The June employment report lands a day early, ahead of Friday's Independence Day market closure. A hot number could cement hike expectations; a soft one might revive doubts about how far the Fed's hawkish stance will go.
  • Tokyo intervention risk: Japanese officials have signaled they're close to acting to support the yen, and traders see Friday's holiday-thinned liquidity as a plausible window for it.
  • Chip-sector follow-through: Whether Wednesday's semiconductor pullback is brief profit-taking or the start of a deeper rotation out of the sector that led the entire first-half rally.
  • Warsh's public style: Whether his low-guidance approach holds up under sustained market and press attention now that he's operating on an international stage.

The bottom line

A record first half has given way to a more anxious second, where the market's fortunes hinge less on the AI story that drove the rally and more on the Federal Reserve. With Warsh sharing the Sintra stage today and a make-or-break jobs report on deck Thursday, the next few sessions could set the tone for the back half of the year. After six months of climbing a wall of worry, investors are discovering that the wall hasn't gone anywhere β€” it's just changed shape.

Sources