Tech Selloff and Renewed Middle East Escalation Weigh on Markets as CPI Posts Largest Monthly Decline Since 2020

Weekly Market Commentary | Week of Jul 20th, 2026

A Recap of Economic and Financial Trends from the Prior Week

By: Michael Horvath, The Quinnipiac University Global Economics Research Team

Last Week in Review

• June CPI posted its largest monthly decline since April 2020, falling 0.4% and bringing the year-over-year rate to 3.5%, reducing the probability of a July Fed rate hike from approximately 40% to 14% as Treasury yields fell midweek

• The S&P 500 and Nasdaq declined as a sharp semiconductor selloff overshadowed solid major bank earnings, with the Philadelphia Semiconductor Index falling 11% and briefly entering a bear market on concerns about lower-cost Chinese AI models

• Renewed U.S.-Iran hostilities following the collapse of the memorandum of understanding drove oil prices 13% higher, weighed on Japan and China equities, and kept European markets broadly flat as energy inflation risks resurfaced

Economic Recap

U.S. economic data last week delivered a meaningful inflation surprise alongside continued labor market resilience. The Bureau of Labor Statistics reported that CPI fell 0.4% month over month in June, below consensus expectations for a 0.1% decline and the largest monthly decrease since April 2020, driven by a 5.7% drop in energy prices. On a year-over-year basis, headline inflation slowed to 3.5% from 4.2% in May, while core CPI, which excludes food and energy, was unchanged for the month and eased to 2.6% annually from 2.9%. PPI also surprised to the downside, falling 0.3% in June against expectations for no change, with final demand goods prices dropping 1.4% amid a 6.4% decline in energy costs. The market-implied probability of a July Fed rate hike fell from approximately 40% before the inflation reports to approximately 14% by Friday afternoon. Retail sales rose 0.2% in June, in line with expectations but moderating from May's upwardly revised 1.0% increase; excluding gas stations, sales rose 0.7%, reflecting the impact of lower gasoline prices on the headline figure. Initial jobless claims for the week ended July 11 declined to 208,000, the lowest since May 2, while continuing claims fell 16,000 to 1.805 million. The University of Michigan's preliminary July consumer sentiment index improved solidly month over month, with year-ahead inflation expectations declining to 4.2% from 4.6% in June, though the reading remained 12% below year-earlier levels.

Internationally, eurozone inflation was confirmed at 2.8% in June, down from 3.2% in May and the lowest since the start of the conflict, though still above the ECB's 2% target. Eurozone industrial production fell 0.2% month on month in May. German wholesale prices rose 4.9% year over year in June, slowing from 5.9% in May. In Japan, core machinery orders fell 12.4% month on month in May, well below the 4.2% decline expected, while the corporate goods price index rose 7.1% year over year in June, above consensus and a multi-decade high. Japan's 10-year government bond yield fell to 2.70% from 2.78% after the government signaled in its final economic blueprint that the Bank of Japan's independence would be protected. In China, Q2 GDP expanded 4.3% year over year, below the 4.5% consensus estimate and down from 5.0% in Q1, though June industrial production rose a stronger-than-expected 5.3% and retail sales increased 1.0% after declining 0.6% in May.

Market Recap

Source: JPMorgan Asset Management, “Weekly Market Recap” (July 20^th, 2026). (Chart © JPMorgan Asset Management. Chart used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

Major U.S. stock indexes finished the week lower as a sharp selloff in semiconductor and AI-related shares overshadowed encouraging inflation data and solid bank earnings. The S&P 500 declined 1.55% to 7,458 and is up 9.64% year to date, while the Nasdaq Composite fell 2.90% to 25,520 and is up 10.15% year to date. The Dow Jones Industrial Average declined 0.93% and the Russell 2000 fell 0.51%. The Russell 1000 Growth led declines, falling 3.64% on the week and now up only 1.25% year to date, while the Russell 1000 Value gained 0.45% and is up 18.86% year to date, extending its substantial year-to-date outperformance. Information technology and communication services posted the steepest S&P 500 sector losses, while energy advanced alongside higher oil prices. The Philadelphia Semiconductor Index fell 11% on the week and briefly entered bear market territory on concerns that lower-cost large language models from China could challenge frontier models. Major bank earnings were broadly positive, with JPMorgan Chase and Goldman Sachs both reporting results that topped consensus estimates, though the favorable reports were insufficient to offset broader technology sector selling. U.S. Treasuries generated positive returns as the week's cooler inflation data pushed yields lower midweek, though Monday's geopolitical-driven oil selloff temporarily reversed the move.

Internationally, the MSCI EAFE declined 0.81% and MSCI EM fell 4.10%, now up 9.29% and 16.92% year to date respectively. The pan-European STOXX Europe 600 ended essentially flat at 0.07% in local currency terms, with the UK's FTSE 100 gaining 0.98% while Germany's DAX fell 0.94% and Italy's FTSE MIB declined 1.39%. Japan's Nikkei 225 fell 6.44% as technology selling and higher oil prices pressured the market. China's CSI 300 fell 5.26% and the Shanghai Composite declined 5.81%, while Hong Kong's Hang Seng gained 1.60%.

Market Themes

Staying Risk-On in a More Fragile World

BlackRock Investment Institute acknowledges that renewed Middle East tensions have made the macro backdrop more fragile, but argues this is not sufficient to move away from a pro-risk stance. In the oil market, Brent crude rose 13% following the latest escalation, the futures curve indicates investors expect a temporary disruption rather than a prolonged supply shock, with prices along the curve converging back toward pre-conflict levels. BlackRock estimates the conflict will shave approximately 0.4% off global GDP in 2026, with roughly 0.3 percentage points already reflected in market pricing, and add approximately 0.8 percentage points to global headline inflation, though the impact will be uneven. Oil inventories have been drawn down by approximately 0.5 billion barrels this year, leaving roughly 0.5 billion barrels readily available to absorb further disruption. BlackRock maintains that immutable economic laws can limit the most extreme outcomes: the knock-on effects of a prolonged energy disruption create economic and political pressures for de-escalation, leaving incentives for all sides to find an off-ramp.

Cheaper AI Changes the Winners, Not the Investment Case

BlackRock Investment Institute views the 11% weekly decline in the Philadelphia Semiconductor Index as an overstated reaction to concerns that lower-cost Chinese large language models could challenge frontier AI systems. The firm argues that cheaper AI broadens adoption rather than undermining it, reinforcing rather than weakening demand for AI infrastructure. The more important signal is that earnings growth still comfortably outpaces the rising cost of capital: consensus now expects S&P 500 earnings to grow 25% in 2026, up from 18% just three months ago, and companies with pricing power can pass higher costs through to customers, supporting revenues and margins. BlackRock stays overweight U.S. equities over long-term government bonds on the basis that earnings growth remains exceptionally strong, and continues to focus on AI bottleneck opportunities in power, chips, and data centers as the most durable expression of the AI mega force regardless of which specific models or applications ultimately prevail.

Chart of the Week

Source: BlackRock Investment Institute with data from LSEG Datastream, "A More Muted Response: Brent Crude Oil Futures Curves Through the U.S.-Iran Conflict," July 17, 2026. Note: Lines show the Brent crude oil futures curve at selected points since the onset of the U.S.-Iran conflict. The "Peak during the conflict" curve corresponds to May 18, when the average price of the first 12 monthly Brent futures contracts was at its highest. The "Post-memorandum" curve corresponds to July 8, following President Trump's declaration that the U.S.-Iran Memorandum of Understanding was "over." (Chart © BlackRock Investment Institute. Used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

The chart displays three Brent crude oil futures curves spanning from July 2026 through July 2029: the peak during the conflict, the post-memorandum curve, and the current curve. At peak, near-term Brent crude prices reached approximately USD 105 per barrel before declining steeply along the forward curve toward approximately USD 75. Following the memorandum of understanding, the post-memorandum curve fell significantly, with near-term prices near USD 78 and converging toward USD 70 at longer maturities. The current curve sits between the two, with near-term prices near USD 85 reflecting the latest escalation, but declining toward USD 70 at longer maturities, broadly in line with the post-memorandum trajectory. The relatively modest move further along the curve reflects market confidence that the disruption will prove temporary rather than structural, supporting BlackRock's view that oil market pricing is consistent with a manageable rather than catastrophic supply shock.

Market Outlook

BlackRock Investment Institute will focus this week on UK CPI and global flash PMI data as the primary tests of whether the global economy continues to settle into a more balanced growth-inflation mix. UK inflation data will be closely watched given the Bank of England's upcoming policy decision next week and the UK's elevated vulnerability to energy price swings given its reliance on gas for electricity generation. Global flash PMIs will offer the most timely read on whether the latest Middle East escalation is beginning to weigh on business activity and confidence. The Federal Reserve's policy decision the following week is already in focus, with markets now pricing minimal probability of a July rate hike following the softer-than-expected CPI report, though BlackRock continues to monitor inflation's trajectory closely given that the energy price shock remains unresolved.

Calendar Events

Economic Data:

Jul. 22 (Tue): UK PPI and CPI; Japan Trade BalanceJul. 23 (Wed): ECB Policy DecisionJul. 24 (Thu): S&P Global Flash PMIs; Japan CPI

Major Corporate Earnings:

Jul. 21 (Tue): The Charles Schwab Corporation (Q2 2026); Capital One Financial Corporation (Q2 2026)

Jul. 22 (Wed): Alphabet Inc. (Q2 2026); Tesla Inc. (Q2 2026); AT&T Inc. (Q2 2026); IBM Corporation (Q2 2026); Texas Instruments Inc. (Q2 2026)

Jul. 23 (Thu): Intel Corporation (Q2 2026); T-Mobile Inc. (Q2 2026); Blackstone Inc (Q2 2026); Lockheed Martin Corporation (Q2 2026)

Jul. 24 (Fri): American Express (Q2 2026); Verizon Communications Inc. (Q2 2026)

Sources

J.P. Morgan Asset Management. "Weekly Market Recap PDF." J.P. Morgan Asset Management. https://am.jpmorgan.com/content/dam/jpm-am-aem/americas/us/en/insights/market-insights/wmr/weekly_market_recap.pdf

J.P. Morgan Asset Management. "Economic Update." J.P. Morgan Asset Management. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/economic-update/

T. Rowe Price. "Global Markets Weekly Update." T. Rowe Price Insights. https://www.troweprice.com/personal-investing/resources/insights/global-markets-weekly-update.html

BlackRock Investment Institute. "Weekly Investment Commentary: Staying Risk-On in a More Fragile

World." BlackRock, July 20, 2026. https://www.blackrock.com/us/individual/literature/market-commentary/weekly-investment-commentary-en-us-20260720-staying-risk-on-in-a-more-fragile-world.pdf

BlackRock Investment Institute. "Weekly Commentary Archives." BlackRock. https://www.blackrock.com/corporate/insights/blackrock-investment-institute/archives

Apollo. "The Daily Spark." Apollo. https://www.apollo.com/wealth/insights-news/insights/daily-spark

MarketWatch. "Economic Calendar." MarketWatch. https://www.marketwatch.com/economy-politics/calendar

Yahoo Finance. "Earnings Calendar." Yahoo Finance. https://finance.yahoo.com/calendar/earnings/