Michael Hewson's Weekly Preview for iFOREX traders on July, 2nd 2026: AI, Energy and the Fed: What’s Driving the H1 2026 Market Rebound

A look back at H1, and Fed minutes – 6th July 2026

By Michael Hewson

Coming off the annual 4th July Independence holiday in the US, the first week of Q3 tends to be a quieter one than most, as markets gear up for summer season, as well as the start of the next round of earnings reports in mid-July.

This gives us a good opportunity to reflect on how the markets have done in the first half of the year, and whether H2 will see a change of fortunes, or whether we might see more of the same.

Key Takeaways

• US equities staged a strong recovery after a volatile first quarter, with the S&P 500 reaching new record highs.
• AI-related infrastructure companies, particularly memory storage providers, were among the strongest market performers.
• Rising inflation continues to influence expectations for Federal Reserve policy in the second half of 2026.
• Investors will closely monitor the Fed minutes, ISM Services PMI and Delta Air Lines earnings for fresh market direction.
• Sector leadership shifted during H1, with technology, industrials and energy outperforming consumer discretionary stocks.

 

As we come to the end of the first half of 2026, the year can be divided perfectly between two distinct quarters.

Having got off to a poor start to 2026, which saw markets hit their lows of the year, after the break-out of hostilities in the Middle East and the closure of the Straits of Hormuz, we’ve seen a complete reversal.

When the breakout of hostilities in the Middle East commenced, at the end of February the S&P500 touched its low point on 31st March, before embarking on a fresh surge to new record highs, at the start of June.

This year’s gains have been primarily driven by energy, industrials and information technology, while consumer discretionary and financials have lagged, although perhaps by not as much as you might think in a lot of cases.

With the S&P500 up by around 7% year to date, and up around 1,000 points from its Q1 low the turnaround in sentiment has been quite something to behold.

As you would expect the rebound has been driven primarily by tech names, however contrary to popular belief it’s not been driven by the ones you might think.

The performance of the likes of the Magnificent 7, Apple, Amazon, Meta Platforms, Alphabet has been pretty unspectacular, with Meta and Microsoft both down over 10%, while the likes of the rest has only seen them trade modestly higher.

The drivers behind the rebound in H1 have been more legacy companies, the likes of Intel, Seagate, Western Digital, Dell and (AMD) Advanced Micro Devices, makers of storage solutions, as well as advanced semiconductor chipsets.

The standout performer by far, however is a company that many IT professionals will be aware of, but which seems to have caught a lot of people unawares and had slipped under the radar somewhat until the end of last year.

SanDisk stock has exploded this year, leaving Micron Technology in the dust, even with Micron shares being up almost 300% year to date, and being one of the main reasons the S&P500 has managed to rebound so strongly.

While many investors have been on the big names like Nvidia, Alphabet, Amazon, along with the IPO of SpaceX, SanDisk has been one of the main beneficiaries of the AI hype, helped by the explosion in memory prices.

Spun out of Western Digital back in February 2025, what does SanDisk do that has suddenly woken investors up to the attractiveness of the stock, and a company that doesn’t even make semiconductor chips.

What it does do, and has done for many years is flash memory, from microSD cards, to ordinary SD cards, flash memory for games consoles, USB flash drives, as well as Internal SSDs and Enterprise SSDs with capacity of over 100TB. 

It is demand for flash memory that has driven not only a sharp rise in the share price, but also seen a 97% increase in Q3 revenue of $5.95bn at their most recent set of earnings. With demand for AI remaining strong, so will the demand for memory and the fast retrieval of information which flash memory provides.

Penny for Western Digital’s thoughts right now, even though their share price is up over 300% year to date.  

At the datacentre end of the market, where the company has increasingly started to gear its business towards revenues increased to $1.5bn, a 233% increase from the previous quarter, and up over 600% on the year. It is here that future growth appears to be focussed towards, along with demand for products geared towards smartphones and PC storage, and it is this that has driven the recent share price surge.

This begs the question of course as to whether this can continue, and with a forward P/E of between 13 and 16 there is no reason to suppose it won’t especially since Nvidia trades much higher than that.

Of course, all of this presupposes that the current momentum around AI continues, and with rising concerns that the sector is overvalued, there is no guarantee of that. 

What we do know is that as the sector evolves, there will be winners and losers, and that while some have suggested that a lot of the sector is over-valued that doesn’t mean we can’t continue to move higher.

One notable loser this year has been Accenture which is down 50%, to 9- year lows, on the back of lower revenue guidance as well as concerns that generative AI will make their consultancy business model obsolete.

After all, why hire an expensive consultant when you get AI to do the audit for you?

Consumer discretionary has also underperformed this year, perhaps not surprising when you consider the sharp increase in inflation that has squeezed consumer spending, away from this sector. One of this year’s poor performers has been Lululemon Athletica, although its problems largely predate recent events, and are merely the latest blow to what has been a struggling business for a while.

Slowing growth in its native market, fierce competition from the likes of Vuori, and poor products, along with boardroom turmoil haven’t helped. It has also faced higher costs given it imports most of its products from Vietnam.

As we look toward the first full trading week of Q3, the only notable items are the latest Fed minutes, the ISM services survey for June and Q2 earnings for Delta Airlines, with the major US bank results coming the week after.  

Fed minutes

08/07 – what is the Warsh Fed going to look like? Having had time to absorb his first press conference he didn’t give too much away, however the setting up of a number of new task forces suggests he intends to do things differently. The statement was certainly much shorter than the previous one, and we already know that the dot plots are likely to be on borrowed time. A lot was made of the fact that he didn’t offer too much in the way of analysis on what he would do differently as Fed chairman, however this was probably by design. One of his many criticisms over the years is that Fed officials talk too much and he appears set to change that. On that, he does have a point, however you don’t want to go too far in the other direction. The nature of the latest minutes will hopefully shed some light on some of the discussions around future policy, assuming that the minutes aren’t subject to the type of curtailments which affected the latest statement.   

2) US ISM Services (Jun)

07/07 – one of the more notable takeaways from recent economic reports has been the sharp rise in CPI inflation, which rose to 4.2% in June. This shouldn’t have been too much of a surprise given the sharp surge in prices we’ve seen in previous month’s ISM reports in both the manufacturing and services sector. While the surge has been more notable in the manufacturing sector, the services sector has also seen a big jump in costs as well, although not at the expense of jobs for the moment. The rise in prices paid in services from 66.6 in January to 71.3 in May, does suggest that a lot of companies are choosing to swallow some of these price increases for now. That doesn’t mean they will continue to do so which means that there is a risk that inflation may well prove to be a much more persistent beast than many would like. Fortunately, we are starting to see gasoline prices come down in the US which may well temper the upside risk. IT should be noted however that even with prices paid remaining at current levels the risks are that rate hikes may well take some time to get priced out by the market if these levels continue to remain elevated, if the economy remains reasonably resilient.

Delta Airlines Q2 26

10/07 – the shares have seen a decent rally since their Q1 numbers back in April. The dialling back of military hostilities in the Middle East has certainly helped in that regard. On the numbers themselves Q1 operating revenues came in at $15.9bn while slipping to a pre-tax loss of $214m, on a GAAP basis. On a non-GAAP basis, total revenue came in at $14.2bn, a 10% increase, while profits came in at $532m, or 64c a share. Delta went on to say that its fuel bill will be $2bn higher as a result of the recent surge in jet fuel prices. To offset this the airline had already cut capacity, and also announced it would be increasing its checked bag surcharge. CEO Ed Bastian went on to say that some of the effect of this increase in costs would be offset by a $300m benefit from its own refinery which allows it to generate its own fuel as well as gasoline and diesel. Delta says it expected to post $1bn in pretax profit in Q2 with the airline leaving its full year guidance unchanged. The Premium travel business has continued to support revenue with a 14% increase here; however, capacity was down 3%. On guidance Delta said it expects to see total revenue rise by a low teens margin, with EPS of between $1 and $1.50 a share.

 

Summary

The first half of 2026 delivered a dramatic turnaround for global markets. After geopolitical tensions and inflation concerns weighed on sentiment early in the year, equities rebounded strongly, driven by technology, industrials and energy. While AI-related investment continued to fuel demand for memory and data infrastructure companies, investors also faced persistent inflation pressures that could shape future Federal Reserve decisions. As the second half of the year begins, attention turns to the latest Fed minutes, US economic data and the start of the Q2 earnings season for clues about the market's next move.

FAQs

1. Why did US markets recover so strongly during the first half of 2026?

Markets rebounded as investor sentiment improved following earlier geopolitical uncertainty, while strength in technology, industrial and energy sectors helped drive major indices higher.

2. Which sectors led market performance in H1 2026?

Technology, energy and industrial companies were among the strongest performers, while consumer discretionary stocks generally lagged behind.

3. Why is AI still an important market theme?

Growing demand for AI infrastructure has increased the need for memory storage and data centre technology, benefiting companies involved in flash memory and enterprise storage solutions.

4. Why are the latest Fed minutes important for traders?

The Fed minutes may provide additional insight into policymakers' views on inflation, interest rates and the future direction of US monetary policy.

5. What economic events should traders watch this week?

Key events include the release of the Federal Reserve meeting minutes, the US ISM Services PMI and Delta Air Lines' Q2 earnings report.

6. How can iFOREX traders stay informed about major market events?

iFOREX provides market analysis, educational resources and trading insights to help traders follow important economic events and market developments.

 

This material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research