Late in the week after a further drubbing, the technology sector staged a rebound from a deeply oversold position. How long it lasts and how far it will go is debatable. In the meantime, long-dated yields in the bond world continue to rise.

 

You can blame the Fed for the continued backup in interest rates. Kevin Warsh's second FOMC meeting has come and gone with a big nothing done when it came to interest rate policy. He argued that the financial markets are doing the heavy lifting right now, and that is all right with him.

 

I could have entitled this column "Bond Vigilantes Ride Again" because that is exactly what the Fed chair is counting on. Readers haven't heard me mention these fixed income traders recently. This is the name markets give those who buy and sell bonds based on their forecasts for economic growth, inflation and geopolitics. Under the last Fed chair, Jerome Powell, the central bank bent over backward to inform the markets of what it was thinking and doing before it did it.

 

Those days are over. Chairman Warsh is determined to pull back on communication. Instead, he prefers to keep his cards close and watch how markets digest the ongoing data. Right now, the vigilantes are convinced that, thanks to the Iran war, tariffs, and government spending, inflation, after a month or two of reprieve, is set to rise again.

 

If that's the verdict, why then did the Fed not simply raise interest rates at this meeting? For one thing, if the once-again spike in oil prices is fueling higher inflation expectations, how would raising interest rates change that? It wouldn't, nor would higher rates reduce the impact of Trump tariffs. Those are supply issues. In inflationary times, the Fed is focused on reducing demand for money by making borrowing costs higher via hikes in interest rates.

 

Remember, too, the Fed's bailiwick is the Fed funds rate, that is a short-term debt instrument. Raising that rate might impact the yields on short-term borrowing costs. It has little impact on longer-term maturities where all the corporate, mortgage, and auto loans occur. That's where the private sector comes in.

 

By the end of the FOMC Q&A session, the markets were left with uncertainty. There was no hint at a September hike, no guidance on what the FOMC members are thinking, only the assurance that inflation was too high. If you think about it, the Fed has been on hold for five meetings in a row and yet bond yields have risen substantially without them.

 

Markets were miffed with the outcome. While Warsh asserted the Fed's commitment in pursuing its 2 percent inflation target, he repeatedly declined to connect that commitment to any concrete action. As a result, traders took the indexes down hard and bond yields higher. To be fair, some of the sell-off at the end of the day on Wednesday was due to one fund manager who was forced to liquidate his holdings in many AI stocks after suffering steep losses over the last few weeks.

 

On the macroeconomic front, the first reading of second quarter GDP growth came in at 1.5 percent below the forecast of 2 percent. Weak, yes, but with the questionable accuracy of government data, traders ignored the result, preferring to wait for further revisions. The Fed's favorite inflation index, the Personal Consumer Expenditures Index (PCE) for June, was cooler. That was thanks to the decline in oil prices, but with oil back up, investors ignored that data point, expecting higher numbers this month and next.

 

Second-quarter earnings continue to separate the wheat from the chaff. Microsoft gave an upside surprise, while Meta did the opposite. Apple disappointed. Amazon gained 15 percent on its results. I did warn that investors would become more discriminating based on individual company results. That is what is happening.

 

As I counseled readers last week, August should see further volatility in the markets. We are already seeing that. Wednesday, the S&P 500 Index fell almost 1.5 percent; Thursday it gained back more than that. Friday it failed to follow through to the upside. While the week was volatile, the index ended essentially flat. The same could be said for the Nasdaq, although volatility was more than twice that of the other indexes.

 

Last week I wrote that I was watching two levels: "the first stop on the S&P would be 7,300 (testing a double bottom). If that fails to hold, we are looking at 7,200 (cycle lows). Technology would have an even bigger decline." The low this week was 7,313. From there it bounced, and we are once again back above 7,400.

 

I also explained there was a second alternative. "The S&P 500 Index, supported by the rotation I have discussed previously (that is out of tech and into sectors like healthcare, utilities, industrials, etc.), could remain at this 7,400 level." We did that as well. All in one week!  

 

You may have missed it given all the geopolitical turmoil, wildfires, and so on. Congress passed a bill this month that some call the most significant piece of housing legislation in almost 40 years. It is called the 21st Century Road to Housing Act.

 

It is remarkable for a variety of reasons. It is a bipartisan effort by both houses of Congress, which the president refused to support or sign. It became law anyway (a first). The legislation encompasses 50 measures, a hodgepodge of ideas from both sides of the aisle. The intent is to relieve the scarcity of affordable housing for a generation of low- and middle-income Americans.

 

Homeownership has long been a cornerstone of the American myth. For so many of the younger generations, it has become hopelessly out of reach. In many urban centers, a typical starter home can now command almost $1 million. Home prices have increased by 54 percent nationwide, and even if a young couple could scrape up enough for a down payment, the monthly costs of owning a home have also skyrocketed.

 

A report by the Joint Center for Housing Studies at Harvard reveals that the monthly cost of a median-priced home was $3,120 in the fourth quarter of 2025. Today it has jumped to $3,200, including mortgage payments, thanks to inflation and a variety of other costs. From 2019 to 2025, property taxes gained 31 percent, insurance premiums rose 72  percent, and interest rates on mortgages are above 6 percent and continue to increase. Overall, monthly costs have risen 46 percent since 2019. No wonder the homeownership rate last year fell for the second year in a row! No surprise that the largest decrease was in those under the age of 35.

 

In past columns, I have written at length about the plight of our youngsters. They are strapped with student debt, a weaker job market (thanks to AI and other factors), and are still living with family in basement apartments or their old bedrooms. There is little affordable housing being built to answer the needs of our younger generations. The new bill aims to remedy that problem.

 

It does so mainly by loosening local building regulations while encouraging building. In some cases, it offers areas that build more housing to receive a bigger share of federal funding while cutting money from areas that don't. On the lending front, the act reduces regulations around rural community banks, where most lending occurs in the small mortgage market of less than $100,000.

 

It also discourages the practice of private equity firms that buy up huge swaths of single-family homes. Critics argue that practice reduces the housing stock and forces many would-be buyers to rent instead. It allows investors to hold onto houses they already own but prohibits any future purchases that would bring their holdings above 350 homes.

 

Ask any builder, and they will tell you regulations are the bane of their existence. Red tape, they complain, adds delays, unnecessary costs, and huge headaches for builders and buyers alike. It won't happen overnight, but the act will loosen federal regulations, making it easier and cheaper to build housing at lower prices. It also relaxes lending rules, but probably the most important change is just a tiny tweak to a 50-year-old law.

 

Until now, mobile homes or manufactured homes were required to have a permanent chassis — that's the under-frame that is used to transport the house and must be left attached. It no longer needs to be attached. Those steel chassis can now be reused, saving anywhere from $5,000 to $10,000 toward the price of the house. That may not seem like much, but it is in the world of manufactured housing.

 

Remember, the bill is addressing affordable starter homes for buyers priced out of the market. Manufactured housing can cost anywhere from 27 percent to 65 percent less than houses built on site. When you consider the average manufactured home costs about $135,000 to build, a $10,000 reduction in costs would go a long way if the builder passed that savings on to the first-time home buyer.

 

Now, before you hold up your hands in horror that America will soon become a nation of trailer parks, settle down. Let's take a closer look at manufactured housing. They are built in factories like automobiles, and as such, economies of scale are at work. They use standardized materials and centralized purchasing. Weather isn't an issue, nor is a shrinking labor supply (due to immigration policies).

 

Getting rid of a huge, cumbersome steel frame under the house both saves money and opens a whole new set of possibilities. We could see multi-story versions or houses that are designed to be lower to the ground. Basement installations would be possible and cheaper as well. It could radically change the whole stigmatized trailer park environment we grew up with. The act also provides grants to communities to repair some of those dismal parks that have become eyesores in many neighborhoods.

 

There are too many parts to this legislation to cover thoroughly in the space I have allotted. Is it a panacea for filling the multi-million home building gap we are experiencing today in the U.S.? Not entirely, but it helps. It does set up the conditions to increase the country's housing supply, expand home ownership, and bolster community development programs.

 

It is not an instant cure. Although federal regulations on home construction are being relaxed, there are a myriad of local zoning laws and building regulations that need to be addressed as well, especially in the manufactured-home segment. And the legislation does not address two of the largest issues in the real estate market right now. High mortgage rates and the 54 percent increase in home prices over the past five years.

 

President Trump refused to sign the bill, which automatically became law on July 11. He said he would only sign the bill, which he dismissed as "a big yawn" and "of minor importance," unless Congress passed his pet legislation, a strict voter ID bill, called the SAVE America Act. Even his most partisan allies in Congress could not muster the votes that, if passed, would require proof of citizenship to register to vote and photo ID to cast a ballot. In a mid-term election year where affordability is of critical concern to voters, the president's decision on housing is right up there with his handling of the Iran war.

 

Oil spiked higher this week, regaining $90 a barrel as the dollar rose and U.S. Treasury bonds sold off. It is not hard to guess what the stock market did as a result. 

 

Down.

 

I'm sure you are just as tired as I am watching this Kabuki show unfold in the Middle East. Not only is the Straits of Hormuz shut in, but now Iran's proxy, the Houthis, have opened a second front along the Red Sea. They have already attacked two Saudi oil tankers and have vowed to close that oil avenue off from any further shipment of oil from Saudi Arabia.

 

Brent crude is up more than 40 percent in three weeks. Readers only need to fill up at the pump this week to realize the cost of this ongoing travesty. The Ten-year U.S. Treasury bond is now yielding 4.67 percent. Traders are dumping U.S. Treasuries as well as stocks in anticipation that by August the inflation data will be rebounding substantially. That would put an interest rate hike back on the table by September by the Federal Reserve Bank.

 

It is a tangled web this administration has woven. There were reports on Friday that Pakistan, with support from China, was seeking to revive negotiations between the two adversaries. That dropped oil prices by 5 percent to around $88 a barrel. Hope springs eternal I guess when  dealing with this war.

 

Oh, in case I forget, the president has just slapped a whole host of new tariffs (10-12 percent) on world trade, manufacturing a new excuse (forced labor in 80 countries) as justification. This adds yet another layer of price increases consumers will be receiving in the months ahead since we now know you and I are paying most of these tariff costs.

 

All the goals of this administration's economic policies, touted by U.S. Treasury Secretary Scott Bessent — reduce budget deficits, boost growth and increase energy production — have remained pipe dreams. Instead, interest rates are reaching new highs, spending and deficits are off the charts, and oil, rather than declining, is skyrocketing.

 

The AI trade has faltered as well. The recurring worry that the large mega-cap tech companies are spending too much money plagues the markets. The fate of this area hinges on the outlook for 2027 capital expenditures growth from the hyperscalers like Google, Meta, Amazon, and Microsoft. Currently, Wall Street analysts are expecting capex to grow by 28 percent next year. That's up from 23 percent two weeks ago and before Google's second quarter earnings announcement on Wednesday night.

 

Google once again raised its estimate of how much more it is planning to spend on AI this year, from $190 billion to a range of $195 billion to $205 billion. The stock cratered on the news despite a blockbuster revenue growth of $119.8 billion, up 24 percent from a year earlier. And what Google is doing, its competitors will do too. By the end of the earnings period, we could see that number increase to 37 percent.

 

Given that all these companies have whittled down their cash due to this monumental spending, investors expect that the only way to increase spending further will be for these companies to sell more stock and raise debt, thereby diluting existing holders. Even if they succeed, there is still no guarantee anytime soon that these companies will see the kind of payoff that is necessary to the bottom line given the amount of money involved.

 

Tesla was another dud. Auto sales are falling, and capex in all his tomorrow ventures, including AI, is exploding higher. Combined with the 50 percent decline in the price of SpaceX, Elon Musk is keeping a low profile lately.

 

Regular readers know that I entered the July-August period rather cautiously. I believe we are in a normal mid-summer consolidation in a mid-term election year. It appears as if Donald Trump is working overtime to ensure Democrats win that contest. That adds even more uncertainty to an equation already burdened by the possibility of a "massive attack" in Iran and therefore further spikes in energy prices. So far, second-quarter earnings have been on target for the most part. Next week, Microsoft, Meta, Apple and Amazon report on Wednesday and Thursday. Their announcements will largely dictate which way technology goes in the short term.

 

I see two possible outcomes for the markets over the remainder of the summer. Both would bring with them high volatility. The first is that we chop around here. Since technology is leading this pullback, I see it trading in a range of a little above and below 680 as reflected in the main Technology ETF (QQQ).

 

The S&P 500 Index, supported by the rotation I have discussed previously (that is out of tech and into sectors like healthcare, utilities, industrials, etc.), could remain at this 7,400 level. Once again, you could still see 50-point swings weekly or even daily in the index.

 

If, on the other hand, Trump allows his emotions to play out with few in the White House willing to talk him down, a sudden escalation in the war might occur. Oil prices spike much higher as a result. In that case, the first stop on the S&P would be 7,300 (testing a double bottom). If that fails to hold, we are looking at 7,200 (cycle lows). Technology would have an even bigger decline.

 

In an era of populism, distrust in government is rampant. That lack of trust has seeped down into just about everything one reads or hears. Government data is no exception.

 

As I wrote in my last column, our own president fired the head of the Bureau of Labor Statistics, claiming the BLS was "broken." He further claimed it would need new leadership "to restore trust and confidence in the BLS's data."

 

Since then, although there has been an acting BLS commissioner, no permanent replacement has made it past the Senate. Six months ago, Trump picked a veteran economist, Brett Matsumoto, as his nominee. This week, a Senate committee voted (12-11) to advance his nomination, but it is unclear whether the full Senate will vote to confirm the nomination. 

 

In his confirmation hearing, Matsumoto recognized the potential for further manipulation and politicization of the BLS. "It is important for the public to be confident that decisions at the BLS are being driven by science rather than politics," he said.

 

If it is science he is after, he may first need to hire qualified subordinates. Fully one-third of the top leadership positions at the BLS are vacant. That may be difficult, since there is a hiring freeze in effect, plus he must deal with a swath of deferred resignations and early retirements. That could be an uphill battle given that the Supreme Court gave the president carte blanche to fire independent government regulators despite federal job protections. As for the money needed to upgrade the governmental data systems, that too will be problematic.

 

In the meantime, meddling with government data, at least on the inflation front, continues. Last month, the Bureau of Economic Analysis, which calculates the Personal Consumption Expenditures Price Index (PCE), announced changes to how they plan to track data. The new method for capturing data and calculating price changes across three subcategories will be revised. In essence, the changes will make the numbers look better (with less inflation) than in the past.

 

Analysts estimate it will reduce core PCE inflation by about 0.2 percentage points. You may remember that Stephen Miran, a Trump advisor and chief architect of "reciprocal tariffs," was appointed to the Fed for a six-month stint and then replaced by the new Fed Chairman Kevin Warsh, another Trump appointee.

 

Miran, along with two Fed staff economists, is behind this effort to alter the PCE, the Fed's main inflation index used to determine the nation's inflation rate. I am sure the Fed will have logical, technical reasons to justify this improvement in their key inflation indicator.

 

At the same time, Fed Chairman Warsh is creating five new policy review task forces to investigate communications, balance sheet policy, productivity and jobs, inflation frameworks, and data. It seems more tinkering is ahead of us.

 

I guess it is pure coincidence that these changes come at a time when mid-term elections are a few months away. We won't know the result or the changes (if any) that may occur until next year. I'm hoping it helps rebuild trust and accuracy rather than the opposite.

 

In my career, I have seen instances of politically motivated meddling in places like Greece, China, and Argentina, to name just a few. In every case, investors lost faith in the data of the country in question, leading to higher borrowing costs.

 

We already have an almost daily problem with nonpublic information that can move markets coming from both within and without the government. Some of it is legal (if questionable); some of it involves leaked advance information from government sources. It doesn't seem that any of the regulatory agencies is willing or capable of stopping it.

 

Taken together, the leaks and inaccuracies among government agencies, both real and intended, are contributing to a deepening sense of distrust and cynicism among voters. Further neglect and delay in regaining that gold standard of government statistics that the country earned over decades should not be taken lightly.

 

Misery loves company, or so they say. There was plenty of that this week as declining technology stocks dragged down the indexes.

 

While the stock market had been stuck in a rut most of the month, the tone changed this week. Markets felt the pain as the leading AI -fueled semiconductor index was walloped. However, appearances can be deceiving. There were some pockets of safety that did well as rotation strategies replaced momentum plays among traders.

 

Quarterly earnings have begun. The estimates call for a 23-24 percent gain in earnings this season. That follows a 26 percent+ record last quarter. Bank stocks were the first to report, and most did not disappoint. Goldman Sachs' profit, for example, was up 78 percent from the prior year while JP Morgan soared 41 percent. It may come as no surprise that investment banking fees had a lot to do with those results.

 

The large-cap banking index made new highs for the year even as AI technology and the semiconductors index suffered additional selling. Boring old utilities, consumer staples, and health care outperformed as most of the AI darlings languished.

 

SpaceX, the Musk deal-of-the-century IPO that I warned readers not to chase, is now down to $124/share, well below the $135/share IPO price. Last week's broker-hyped offering, the "must have" Korean-based ADR, SK Hynix, has also been a dud (minus-37 percent).

 

Not all technology has done poorly. After being ignored or sold down for weeks, the Magnificent Seven stocks have added $1.5 trillion in market value in July, while semiconductor stocks, excluding Nvidia, have erased nearly $1.7 trillion in market value. Software companies, another casualty of AI predominance, have come back from the dead. Forty-four out of 51 software stocks in the Yahoo Finance industry basket are up for July with a median gain of 6 percent.

 

Given the high valuations of most stocks, it seems investors are quick to punish and just as quick to reward. Those companies that disappoint, failing to live up to investors' expectations, are quickly taken to the woodshed. IBM announced weak preliminary results, and the stock fell 25 percent, the largest decline since at least 1968. Netflix also disappointed and opened down 10 percent on Friday.

 

The next two weeks should be interesting as more companies report. I warned readers in weeks past that, this time around, quarterly earnings will see investors take a much more selective approach to companies based on their results and guidance. Evidence so far indicates I am not far off the mark.

 

This week, we also had the results for both the Consumer Price and Producer Price Indexes for last month. As I predicted, both numbers fell well below street expectations. I also expect next month's numbers to be weak as well (unless Trump's Forever War pushes oil prices higher still). Markets pushed higher for a day in celebration, but it didn't last long.

 

Kevin Warsh, in his first appearance as Federal Reserve Chairman before the House Financial Services Committee, threw cold water on the monthly inflation numbers. He pointed out that one or two data points do not make a trend.

 

Warsh said, "The longer prices have been above the inflation target, it's usually a bit harder to dislodge them and get them lower. Our job, my commitment to you, is to take sticky prices and to unstick them." That may be music to the ears of Main Street (and me) but do nothing for the financial market's hopes of easier monetary policy this year.

 

The bullish tone of the markets preceding and just after the Fourth of July has come and gone. As readers know, I have approached July and August with caution. Since the holiday, investor sentiment and fund flows have waned, while the technology sector has come under more pressure.

 

This week, we saw further evidence of that as the Nasdaq declined more than 3 percent, the S&P 500 dropped 1.43 percent, and the Russell small-cap index, the best of the bunch, maintained its bullish posture. It declined by less than half a percent.

 

It is no surprise to see the areas that went up the most experience the most severe declines. It is how markets work. Profit-taking in semiconductors was in full force this week. While I do expect bounces along the way, I think over the next few weeks we will see further downside.