Tech weakness was responsible for the S&P 500’s 2% decline this week as the AI trade morphs and evolves. However, underlying metrics were much better. The S&P equal-weight index was up 1.5%, outperforming the headline index by ~350 basis points. Small cap indexes outperformed. The S&P 600 was up over ~3%. The Russell 2000 and S&P 600 are up 20% this year. The equal-weight is up 11%, over 300bps of outperformance.

The various concerns around the scale of AI spending have been noted for a while and they’ve served as catalysts for temporary drawdowns across the space. This week, however, it feels like those concerns took a new turn, with Micron earnings, Apple/Microsoft price increases, and OpenAI IPO delays (maybe) all opening new areas of debate.

While tech generates so many headlines right now, there’s more to the market than trillion parameter AI model training. 7 of 11 sectors are higher this week. Some of the moves showed hallmarks of a basic rotation into lagging areas like Healthcare. The Russell reconstitution today and the approaching quarter-end next week is likely driving some of that rotation. As we move into July, we hit the strongest month for the S&P historically.

The newly reconstituted Russell indexes will greet us on Monday and another holiday shortened week. We'll also see the end of Q2 and 1H 2026. Markets will be closed on Friday July 3 in observance of July 4th. The monthly payroll numbers will headline the economic data. The Sintra conference will bring together central bankers including Fed chair Warsh. Earnings will include Nike, Constellation Brands, FactSet and General Mills. Enjoy the start of your summer!