The Dow Jones Industrial Average set a new intraday high on Thursday as investors rotated out of expensive tech names and into more attractively valued sectors of the market. On the economic front, consumers remain resilient, continuing to open their wallets amidst Middle East uncertainty and hoping a lasting peace deal will soon lower prices. Lower energy prices are only part of the inflation equation, however, with AI spending impacting the supply for semi and memory chips, prompting Apple and Microsoft to raise their prices for key consumer goods. With the year’s midway point just days away, it has been a strong first half. Overall conditions remain constructive for equity markets, but rates, inflation and pure momentum exhaustion bear watching.
Economic Highlights:
- Prices continued to march higher in May. The Personal Consumption Expenditures Index, the Federal Reserve’s preferred inflation gauge rose 0.40% on the month. YOY, it was up 4.10% for its highest reading since April 2023. Energy was the primary source of price gains but even excluding food and energy, the core PCE gained 0.30% on the month and was up 3.40% YOY.
- High prices did little to dent consumer spending. May consumer spending rose 0.70%, beating expectations of 0.60%. Helping keep consumers in the spending mood was a 0.70% increase in income. That’s a strong rise following zero growth in April. Consumers were also feeling a bit better about their financial situation. The University of Michigan’s Surveys of Consumers said its Consumer Sentiment Index increased to 49.5 this month from 44.8 in May. The rebound in attitude was driven by the drop in gasoline prices and easing concerns over the Iran conflict.
- The June S&P Global Flash PMI rose to 52.2 from 51.5 in May, hitting a five-month high. Numbers above 50 indicate expansion while those below signal contraction. Manufacturing PMI surged to a 49-month high of 55.7 while services edged up to 51.3.
Dow Surges to Record High as Big Tech Retreats
It was the blue-chip Dow Jones Industrial Average’s time to shine this week, with the index powering its way to a new intraday high on Thursday. The move higher was driven by strong performance from the non-artificial intelligence segments of the index, which included healthcare, financials, and industrials. Meanwhile, the tech sector continued its retreat over concerns of the increasing cost of artificial intelligence infrastructure. Price hikes from MAG-7 members Apple and Microsoft more than offset a blowout earnings report from chipmaker Micron. Apple stock fell 6% after it announced it would hike prices on its MacBook and iPad products. Hours after Apple’s announcement, Microsoft said consumers should expect to pay more for its Xbox game consoles, shedding 3.46%. No longer willing to absorb the rising cost of chips and memory, the tech giants’ price increases seek to preserve margins at the risk of reduced consumer demand. Memory prices show little signs of easing which some analysts worry will compound the inflation picture. Tech stocks also came under pressure on Friday on news ChatGPT parent, OpenAI, is considering delaying its IPO having watched SpaceX’s poor performance following its debut two weeks ago, which has fallen nearly 25% from its peak, and the overall volatility currently impacting AI-related shares. The broader market, however, had a good week as the Dow got a lift from the rotation out of expensive tech names and the re-opening of the Strait of Hormuz. The latter should provide meaningful relief to both consumers and businesses. The peace deal is already being tested, however, with Iran attacking a Singapore-flagged cargo ship on Thursday. Prior to the attack, around 70 ships had managed to successfully navigate the strait since the phase 1 agreement was reached. Facing erratic supply, manufacturers have raced to re-build their inventories, pushing prices higher in the process. This was apparent in May’s Flash Manufacturing PMI which hit a 49-month high. Fortunately, consumer demand has remained steady for the first half of the year driven in large part by incomes having risen as well.
As we close out 1H 2026, consumer spending and investors’ willingness to “believe” has been the name of the game. We’ve written a lot about the resilient consumer and optimistic investor over the course of the last six months, but to a certain degree desensitization may be the better term. Consumers, businesses, and investors have had to contend with major macro forces this year in the form of a major energy supply shock, war, and a resurgence in inflation, but the consumers’ willingness to just keep spending and businesses’ decision to continue pouring money into the AI buildout, has provided powerful earnings growth that investors simply can’t ignore. Having weathered the tariff tumult throughout 2025, wars and a little inflation perhaps look a little less daunting than they would have in years past. As we head into the second half, things appear constructive for markets with the war looking like it will dial down over the coming months and energy prices appear poised to fall along with it. While the market as a whole is no bargain, and there are pockets that certainly look lofty, it’s worth noting that today’s forward P/E ratio (S&P 500) is cheaper than it was at the beginning of the year due to revised earnings forecasts over the past several months. The S&P 500’s earnings are now estimated to grow nearly 20% in aggregate in 2026, while at the same time conditions for the labor market, manufacturing and services are steady or improving. Tech is still the major force for markets and will inevitably remain the dominant topic in the second half, but the broadening seen in in this week’s rotation is likely to have legs rewarding diversification both for its upside return potential but also for its downside protection.
The Week Ahead
Markets will be closed on Friday July 3rd in observance of America’s 250th birthday. Week in Review will also pause in observance. Our next edition returns on July 10th with the latest services and trade figures.
Mid-Year Money Check: Are Your Finances on Track?
We are just about halfway through 2026, and this is the time of year at Probity Advisors that our team of wealth management professionals looks forward to having mid-year check-ins with clients. Mid-year meetings are an opportunity to ensure all aspects of our clients’ financial lives are continuing to move in the right direction and to discuss any changes in your personal or financial circumstances to help ensure that your overall financial plan remains on track.
The “Halftime” Goal Review
Think of the mid-year mark as a financial halftime. It’s an opportunity for us to revisit your goals and compare them against your progress. If you’ve experienced any major life shifts—such as a career move, a new addition to the family, or a change in your retirement timeline—our advisors can adjust your broader financial plan now to keep you on the right path.
Revisit Your Retirement Plan Contributions
One of the simplest ways to strengthen your long-term financial outlook is to maximize your retirement plan contributions, subject to your plan’s limits and your personal budget. At a minimum, workers should contribute enough to receive their employer’s full matching contribution—otherwise you’re leaving money on the table. Since most workplace retirement plans can only be funded through payroll contributions, now is an ideal time to evaluate the amount or percentage you are withholding from your paycheck to make sure you are hitting your savings target in the remaining pay periods of the year.
Review College Savings Plans
If you’re saving for a child’s education, this is a good time to evaluate your progress and determine whether your current contributions remain on pace with future education costs. Families who have not yet started saving may wish to discuss available education savings options with one of our advisors.
Tidy Up Your Tax Files
Planning can go a long way when it comes to taxes. It’s a good idea to keep and maintain records of any tax-deductible expenses while it’s fresh in your mind instead of waiting until tax filing season. Track and organize any out-of-pocket medical expenses, mortgage interest, and charitable contributions. A last-minute scramble could result in missing deductions.
Managing Your Health Savings (FSA & HSA)
If you have a health saving account, now is the time to review your balance so you don’t lose funds at year-end. FSAs and HSAs can be a powerful component of your long-term wealth strategy with tax advantages.
Review and Optimize Your Emergency Funds
Many planners recommend having three to six months’ worth of living expenses set aside in a liquid, interest-bearing account to provide for you when life’s emergencies arise. The reality is that while most of us have money scattered around that is mentally earmarked for such situations, few have taken the time to measure how much would be necessary to live on and even fewer structure their emergency fund to maximize their return while those dollars sit idle. Your retail bank may not offer the best deal. Not all high yield savings accounts are the same. Money market funds pay tremendously different rates. Consider discussing with your advisor where you have your money parked and opportunities to maximize your return.
Monitor Spending and Cash Flow
Review your income and spending over the first half of the year to ensure your budget still reflects your current lifestyle. Looking through bank and credit card statements can often uncover recurring subscriptions or expenses that are no longer necessary or reveal other savings opportunities to free up additional dollars for investing or debt reduction.
Beat the Year-End Custodian Crunch
Inevitably year-end, instead of mid-year, becomes the time most of us think about financial and estate planning as well as gifting. Unfortunately, custodians get bottlenecked and last-minute asset transfers may not be satisfied depending on the timing. It is not uncommon to see a four-to-six-week backlog for typical requests come year-end. These delays can impact qualified charitable donations of cash and securities from your tax qualified account, gifting of assets to trusts, and other transactions in some cases. We encourage you to take one more future “to do” off your plate by trying to put your requests in between now and late October or early November.
If you’d like to review your financial plan, retirement strategy, investment portfolio, or discuss estate planning considerations, please reach out to our advisors at (214) 891-8131. We’d love to meet with you.