By Thierry Hasse, Chief Investment Officer
Elevage Partners | July 20, 2026
The artificial intelligence revolution keeps turbocharging market volatility, and last week International Business Machines gave us a case study in how quickly “winner” and “loser” can trade places.
CEO Arvind Krishna did not soften it: “we faltered.” The irony is that IBM entered the year as one of the market’s AI-adjacent darlings, having disclosed a GenAI book of business north of $12.5 billion (Source: IBM). What changed is not IBM’s AI story but its customers’ spending priorities, as a global memory chip shortage pushes enterprise budgets toward hardware and away from the software and consulting lines IBM depends on (Source: Forbes).
The headline indexes tell the same story in aggregate: the S&P 500 fell 1.6% for the week and the Nasdaq dropped 2.9%, its worst weekly showing in some time (Source: CNBC). But the equal-weighted S&P 500, which strips out the outsized influence of a handful of mega-caps, rose about 1% on Thursday alone to its highest close in a month (Source: S&P Dow Jones Indices). That gap is the real story. This was not a broad market decline. It was a violent reallocation within the AI trade, punishing the names whose spending or positioning looked wrong while leaving much of the rest of the market intact.
Two Assumptions Meet Reality
Two comfortable readings of the market ran into new data last week, against a backdrop of renewed Middle East risk: the fragile U.S.-Iran ceasefire broke down again, and Brent crude climbed to roughly $85.92 a barrel, its highest level since June 22 (Source: Trading Economics).
The first assumption was that the capital pouring into AI infrastructure could keep commanding today’s pricing power. On Thursday, Chinese startup Moonshot AI unveiled Kimi K3, a 2.8 trillion-parameter open-weight model that reportedly matched or beat leading U.S. systems on several benchmarks, and traders drew an immediate parallel to last year’s “DeepSeek moment” (Source: VentureBeat). The Philadelphia Semiconductor Index fell into bear market territory, more than 20% below its late-June peak, as investors questioned whether that capital still buys what it used to (Source: Bloomberg).
The second assumption was that inflation was cooling. Federal Reserve Chair Kevin Warsh’s first congressional testimony, delivered Tuesday and Wednesday, did little to settle it: he pledged that “the inflation surge of the last five years will be a thing of the past,” but offered no signal on the Fed’s next move, leaving a rate-setting committee split roughly evenly between members who see further hikes and members who favor holding or cutting (Source: Federal Reserve).
That vacuum arrived the same day the June Consumer Price Index showed annual inflation cooling to 3.5% from 4.2%, the first monthly price decline in six years (Source: Bureau of Labor Statistics). Markets shrugged. In our assessment, that reaction is correct: the June improvement was driven largely by falling energy prices that are already reversing with oil moving higher again, and one data point, however encouraging, is not evidence of a trend.
The Discipline of a Public Market
Nowhere is the AI-hype unwind more visible than SpaceX. The stock closed Friday at $123.99, down 5.4% on the day and now roughly $1 trillion below its June 16 peak market value of $2.64 trillion, a month after the largest IPO in market history priced shares at $135 (Source: Bloomberg). SPCX closed the week under that IPO price for the first time. A scrubbed Starship test flight didn’t help, but the deeper issue is that a euphoric post-IPO valuation is meeting the ordinary discipline of a public market. Nearly everyone who bought in the early days is now nursing a loss, except the investment banks that underwrote the deal. Morgan Stanley, Goldman Sachs and JPMorgan reported blowout earnings powered by equity trading and underwriting revenues, built substantially on the same AI-driven volatility that is unsettling everyone else’s portfolio.
Waiting on Real Visibility
Amid the fog of the Canadian wildfires now blanketing the Northeast and Midwest in haze, we think it is fitting that market visibility feels just as obscured. With more than 800 fires burning and smoke disrupting air quality from Chicago to New York (Source: CNN), investors get a real test of that visibility this week. Alphabet ($4.2 trillion market value, the world’s second-largest company) and Tesla ($1.4 trillion) both report second-quarter results Wednesday, July 22, the two largest U.S. companies on the docket (Source: Fool.com).
It’s unsettling to watch this many stories get tested on this many fronts in one stretch. But that discomfort is the market doing its job: separating what a story promised from what the numbers can prove. We’d rather wait for the proof.