Market Backdrop: A Holding Pattern Into the Long Weekend
The market is in a phase of consolidation heading into the long holiday weekend. This is not surprising after a fairly solid stretch of gains earlier in the week, which itself represented a bounce back from the weakness and choppiness seen during June. One thing to watch is that liquidity and market depth may thin out as fewer traders remain available going into the extended break.
The prior session offers useful context. Markets weakened into the close to finish slightly negative, with the Dow and the Russell pulling back from intraday all-time highs. That pullback was driven mainly by weakness in information technology and the chip names. Both the Philadelphia semiconductor index and the SMH fell roughly five to six percent, as investors took profits in some of the year's winners — names like Intel, AMD, Micron, and other memory chip and semiconductor equipment makers. That money rotated into the MAG7, which held up relatively well with the exception of Nvidia, which finished down about one and a quarter percent. In short, more of a rotation trade was on display.
Some consolidation may be warranted at this point, but several supportive factors remain in place. The VIX sits at low levels, signaling calm. Crude oil is trading near $67 a barrel — levels not seen since the end of February — which is lending support and firmness to the equity market and is a positive on the inflation front. Overall, no major fireworks are expected in the near term, though the jobs report could introduce some volatility.
The MAG7 (or "LAG7") and the Monetization Debate
Within big tech there remains a clear bifurcation between perceived winners and losers, sometimes reflected in the label "LAG7" applied to the megacaps. Meta pulled higher in the prior session. Part of the bullish thinking around Meta is that it will likely start selling compute — effectively competing with cloud infrastructure providers like CoreWeave and Nebius — which would be a positive for the company.
Wells Fargo made minor adjustments to price targets across three of the big names — Alphabet, Amazon, and Meta. What ties these three together is that they have all continued to raise their capital expenditure spending, and that spending is expected to keep rising into 2027. There is no sign of any pullback in the investment going toward AI infrastructure buildout.
One notable detail: the price target on Alphabet was lowered to $416 from $435, while the overweight rating was maintained. This captures the central tension investors face with this group. The concern is straightforward — these companies are spending enormous sums on AI, their earnings remain very strong, but the open question is how they will monetize what they are spending. The key theme investors must resolve is whether earnings will continue to outperform enough to support the narrative that it is acceptable for these firms to take on debt and pour money into AI infrastructure.
It was encouraging to see strength in these names because all three are in correction territory, sitting more than 10% off their record highs, with Meta even further below its all-time highs. Looking forward, a crucial question is which of these companies will be the first to break ranks — the first to signal that it will not raise capex spending in 2027 or 2028. When that pullback comes, it may arrive because a company has to acknowledge that AI may not be as monetizable as initially hoped. Paradoxically, such a moment of spending restraint could actually become a catalyst that sends one of these names surging higher. So far, however, none of the companies have stated anything of the kind.
Palantir: An Upgrade a Day Late
Palantir shares moved higher again in the pre-market, following a big move in the prior session that came after an animated and volatile interview from CEO Alex Karp. DA Davidson likes the name and sees opportunity, though the note arrived a day late — the stock had already surged after the Karp interview, and a firm upgrade in ServiceNow was also seen the same day.
The overarching theme is identifying which companies will be necessary for the AI buildout — a world where some firms may not spend as much internally to build their own agents and processes, and where certain vendors stand to take advantage of that dynamic. Palantir does not have a true competitor in its space. It posted 85% revenue growth last quarter, yet its revenue is still only about $1.6 billion. That combination points to a massive total addressable market, spanning not just the government side but a commercial business that has grown substantially. The central question is whether Palantir becomes one of those firms that is simply necessary.
There has been recent weakness, too. The stock hit roughly a one-year low just last week. The reason: the UK signaled it might not re-up its contract with Palantir, and France and the EU are reportedly going through their own contract negotiations with the company. Even so, for anyone looking to leverage and monetize AI going forward, Palantir sits at the forefront. The DA Davidson note is likely taking advantage of the recent price action, given the stock's significant pullback — it remains down about 39% from the record highs set last fall. The outlook is reasonable, though the firm would have captured a much nicer pop had it published the day earlier.
Apple: Chip Shortage and Supply-Chain Diversification
Apple shares were not seeing a big change, but a Bloomberg report indicated the company is in talks to potentially purchase chips from Chinese semiconductor makers — several of which are on the Pentagon's blacklist. It is unclear whether such purchases would be illegal for Apple. CEO Tim Cook reportedly reached out to the administration, specifically Scott Bessent, essentially explaining that Apple is facing a chip shortage and that access to these chips would help significantly. Whether the deal goes through is uncertain; the broader intent appears to be diversifying the supply chain.
The pressure here is real. Apple recently raised the price of its Mac and iPad by $100 because of a memory chip shortage — costs it has to pass along to consumers. An interesting thing to watch this fall, when the upcoming iPhone 18 is released, is how much Apple raises iPhone prices, because it will likely have to. Component prices have exploded. That explains the push to diversify the supply chain: securing alternative chip sources may help Apple avoid raising the iPhone price by $150 or $200. There are many components inside those phones, and the company is searching for ways to protect its profitability.
There is also a demand-side wrinkle. A report from MacRumors indicated Apple plans to reduce iPhone 17 production in order to ramp up the iPhone 18. But this may also reflect consumer-demand concerns: raising phone prices by $100 or $200 could cap sales, create headwinds for future demand, and potentially bring the upgrade "super cycle" to an end.
The Jobs Report: Muted Expectations
The jobs report was still ahead and could be a catalyst, but no fireworks are expected from the number itself. Just over 110,000 jobs are expected to be added. The prior day's ADP figure showed some weakness and missed the mark. The unemployment rate stands at 4.3%.
The suggestion is to focus on wages. Wage growth is expected to rise 0.3% on the month, with year-over-year growth around 3.5%. There has been consolidation rather than growth on that front, which may actually be a positive on the corporate side. This report comes on the heels of a couple of months of solid job growth, so it is worth watching for revisions — potentially a pullback from the outsized figures posted in April and May.
