Think Small. The U.S. peace deal with Iran remains delicate, but investors seem to be too busy selling artificial intelligence stocks to notice. Tech was the main drag on markets today, although small caps were a bright spot.

The Dow Jones Industrial Average added 0.3%, helped by gains in non-tech sectors, from financials to energy and industrials. By contrast, the S&P 500 lost 0.4% and the Nasdaq Composite fell 1.3%.

Iran war peace talks were fraught over the weekend—President Donald Trump threatened to restart the conflict and there was ongoing violence in Lebanon. But investors are still hopeful that the two sides are making progress amid ongoing talks in Switzerland, which the U.S. characterized as positive.

With Wall Street largely optimistic that an end to hostilities will come sooner rather than later, tech was once again the real reason stocks were moving today. Google parent Alphabet lost a key researcher to Anthropic which caused the stock to dip, but investors seemed to be taking money out of the sector across the board. Because tech is such a large part of the market now, that had an outsized impact on the S&P 500 as well as the tech-heavy Nasdaq.

It wasn’t all bad news, though, as evidenced by the Dow’s rise. Small-caps added to their recent gains, with the Russell 2000 reaching another new high. Yardeni Research President Ed Yardeni writes that unlike the dot com bubble, which was characterized by FOMO, or fear of missing out, the current cycle can be best characterized by FEMO, or fabulous earnings momentum. And that’s not restricted to mega caps.

“While the earnings quality of the Magnificent-7 might be reduced by circular financing and capital gains, that’s not an issue for the earnings of the Impressive-493, which has been increasing at a faster pace since mid-2025,” he writes. “S&P 600 SmallCap and S&P 400 MidCap forward earnings also have been rising at faster paces over the past year…We remain constructive on the bull market, with FEMO now broadening across the market-cap structure.”

Talk about small but mighty.

The Hot Stock:  Super Micro Computer +15.6%
The Biggest Loser: Moderna -7.2%

Best Sector: Real Estate +1.4%
Worst Sector: Communication Services -3.8%

This week will bring two key updates on the consumer, with the Bureau of Economic Analysis releasing the personal consumption expenditures price index for May on Thursday, followed by the the University of Michigan’s consumer sentiment survey for June on Friday. Not surprisingly, the Federal Reserve’s favorite inflation reading is expected to rise, while consensus calls for consumer sentiment to hold steady, just a hair above record low readings.

On one hand, these data points only matter so much. We’ve already seen that retail sales are up, with credit card data showing that shoppers are buying discretionary items as well as essentials. Americans are burdened with less debt than they were before the pandemic, and with a strong job market as well as stock market gains, spending has kept chugging along.

Yet on the other hand, these readings can still have broader implications. The Fed is going to be watching all economic indicators closely as they decide what move to make on interest rates. “[I]nflation remains the most critical variable,” notes Northwestern Mutual Wealth Management Company Chief Investment Officer Brent Schutte. “Its importance was reinforced by the Fed’s post-meeting statement, which focused solely on restoring price stability, with no mention of maximum employment. During the press conference, Chair [Kevin] Warsh reinforced that commitment, emphasizing the need to bring inflation back down to the 2 percent target after more than five years of failing to meet that objective.”

Lower interest rates benefit consumers in terms of freeing up cash that might otherwise be spent on things like mortgage payments; businesses too benefit, which can in turn help workers who get hired in new positions or receive raises. But the real allure of lower interest rates right now is the effect that it could have on big tech and AI.

AI has been the main driver of stocks recently, accounting for the biggest portion of earnings growth in the S&P 500 during the current bull market. But the AI buildout is expensive, and even big tech companies are financing their investments in the new technology.

“What was once funded largely through free cash flow by hyperscalers is increasingly being financed through debt and equity issuance, making it more sensitive to interest rates,” Schutte writes.

Some investors have worried about the circular AI economy. But it’s worth remembering how tech, consumers, inflation and interest rates are all interconnected when it comes to the economy.

FedEx, Cerebras Systems, Carnival, and KB Home report quarterly results tomorrow.
—Connor Smith

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