Good morning,

Welcome to the final trading session in July. Coming into today the S&P 500 is down 0.8% for the month but that does no justice to the volatility that we’ve seen beneath the surface. During the month there was a momentum unwind of historic proportions which had a clearing event yesterday after a forced liquidation of a supernova hedge fund heavily exposed, and apparently levered, to the AI trade. Situational Awareness was launched in 2024 with $225ml by a former 24-year-old OpenAI researcher. It had reportedly grown to >$40B and was up >400% and was running with 4X leverage at the end of June according to sources. As the AI trade began to unwind and its positions were falling sharply it was facing margin calls and trying to raise additional capital. The WSJ reported that Citadel had bought its levered positions, though the firm reportedly continues to hold cash backed positions and its ownership in Anthropic. This helped to explain some of the wild price action seen particularly over the last week and along with a round of solid earnings sent tech stocks sharply higher during yesterday’s session. The ICE Semi Index was up >8% while the DRAM ETF was up 2X that amount. The firm was heavily exposed to neoclouds companies which were up >20%. Software stocks were under pressure as the firm reportedly had multiple short positions across the sector. However, Microsoft had the biggest one-day increase in market capitalization in history following its earnings, nearly $450B. Yesterday the S&P 500 was up 1.7% reversing pretty much all of the selloff during the final hour of trade on Wednesday though the equal-weight version of the index ended modestly lower as the defensive/yield-oriented sectors that have benefited from the rotation throughout the month sold off. The other notable development was the reportedly coordinated currency intervention in the Yen and South Korean Won ahead of the BOJ rate decision last night.

Overnight tech heavy markets in Asia ripped following the US move. US futures are extending to the upside with the tech strength continuing in the pre-market as traders feel like it is safe to get back in the water. It was another big night of mega-cap tech earnings which like yesterday were a mixed bag. Amazon (+10%) is trading sharply higher after very strong AWS revenue growth which was up 37% and strength in its chip business which had a run rate of >$25B. The company increased its Capex by ~10% to ~$220B in 2026 but investment is translating into AWS strength with Andy Jassy suggesting the business could possibly be a $1T revenue business. Apple (-8%) is under pressure after its revenue guidance disappointed with the company highlighting supply constraints which also impacted margins. Both Exxon and Chevron reported this morning and are currently trading around unchanged levels. S&P futures are modestly higher but have pulled back from the highs after testing its 50d ma, which has served as resistance over the last couple of weeks.