If It Walks Like A Duck
The rebound in stocks yesterday came despite a rise in crude oil prices, reigniting inflation concerns that pushed bond yields to the highest in two months. Global benchmark Brent crude oil breached $90 per barrel, the highest since early June, as investors weighed the risk of disruptions to global energy supplies. The 10-year U.S. Treasury yield has backed up to 4.6%, the top end of its range over the past year. That is causing some consternation in the equity markets. S&P 500 valuations have come down from recent peaks, but are still elevated versus historical levels. While corporate earnings have been solid so far, higher rates provide a dampening effect on valuations. Over the next week we will gain more clarity from the large AI spenders Microsoft#, Meta#, and Amazon#, along with reports from Apple# and Google parent Alphabet#. There is also a Federal Reserve meeting next week. There is a 26% chance of a small rate increase in the cards.

The stock market is behaving like a duck swimming feverishly underwater, but on the surface seems to be gliding along. There have been 52 trading days so far this year when the S&P 500 Index went in one direction but a majority of stocks went the other way. The market’s closely watched fear gauge, the Volatility Index, provides a rough measure of how much choppiness investors expect in the S&P 500 index in the coming month. That index sits below its long-term average. However, there is more activity around big moves up or down in individual stocks, which paints a totally different picture. Concerns are centered around specific stocks and sectors, mostly momentum stocks that have gyrated with waxing and waning AI optimism.

The Kimi Moonshot
Here we go again. About a year and a half ago, reports out of China suggested that a new artificial intelligence engine called DeepSeek was about to take over the world. It would be faster and cheaper than existing AI models. Technology stocks took a major tumble in early 2025 on this development. It turned out to be premature, and technology stocks rebounded throughout last year. Now this year, we have the “Kimi shock.” Chinese startup Moonshot AI released a new artificial-intelligence model last week that drew global attention for its powerful capabilities. That news sent global stock markets reeling. The Beijing-based company’s Kimi AI model supposedly delivers performance that rivals offerings from OpenAI and Anthropic. The startup was originally called the Dark Side of the Moon in Chinese, after the founder’s favorite Pink Floyd album.

However, reports that Moonshot AI had to pause new consumer subscriptions due to a lack of sufficient compute capacity served as a reminder that the physical demand for high-end hardware remains a massive bottleneck. This development provided a degree of relief to U.S. semiconductor chipmakers and those companies in the AI supply chain.

Earnings Reports – So Far So Good
We heard from several major U.S. banks early in this second quarter earnings season. Bank of America# reported a 34% year over year increase on 15% higher revenue. Net Interest Income increased 9%. Investment banking fees grew 50% and commercial borrowing picked up while provisions for credit losses declined. J.P. Morgan# had similar comments on its earnings report for the second quarter, noting continued strong demand. According to the major banks, the outlook regarding consumer health remains solid.

Magnificent 7 technology companies are expected to post 31% earnings growth rates for the second quarter, outpacing the 23% pace for the rest of the 493 companies in the S&P 500 Index. However, this group’s earnings growth is expected to decelerate to 23% by the fourth quarter, while the remaining 493 stocks earnings are expected to accelerate to 25%. Right now, we are swimming against the tide of higher energy prices and slightly higher interest rates, but aided by a powerful corporate earnings engine.

Spain won the recent World Cup Soccer final, however no goals were scored until overtime. There was no exciting shootout at the end, just a long and challenging marathon of a game. This is a reminder that investing is a marathon and not a sprint. Stock market futures are indicated slightly lower this morning, but remain near all-time highs.

Spanish soccer player Marc Cucurella turns 28 today, Selena Gomez turns 34, actor Danny Glover turns 80 and actor/comedian David Spade turns 62.

Christopher Crooks, CFA®, CFP® 610-260-2219

 

Tower Bridge Advisors manages over $1.5 Billion for individuals, families and select institutions with $1 Million or more of investable assets. We build portfolios of individual securities customized for each client's specific goals and objectives. Contact Nick Filippo (610-260-2222, nfilippo@towerbridgeadvisors.com) to learn more or to set up a complimentary portfolio review.

# – This security is owned by the author of this report or accounts under his management at Tower Bridge Advisors.

Additional information on companies in this report is available on request. This report is not a complete analysis of every material fact representing company, industry or security mentioned herein. This firm or its officers, stockholders, employees and clients, in the normal course of business, may have or acquire a position including options, if any, in the securities mentioned. This communication shall not be deemed to constitute an offer, or solicitation on our part with respect to the sale or purchase of any securities. The information above has been obtained from sources believed reliable, but is not necessarily complete and is not guaranteed. This report is prepared for general information only. It does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. Opinions are subject to change without notice.