It’s not Christmas in July, but investors are seeing red. Stocks struggled to start the week between renewed hostilities in the on-again, off-again war in Iran and a lack of support from artificial intelligence and tech stocks.

The Dow Jones Industrial Average ended down 0.3% while the S&P 500 lost 0.8% and the Nasdaq Composite fell 1.6%.

President Donald Trump said on Monday that he was reinstating the Naval blockade of the Strait of Hormuz, and that all non-Iranian ships that pass through the waterway must reimburse the U.S. at a rate of 20% for the cargo. The move comes after both sides traded strikes over the weekend and oil climbed in response.

“The escalating Iran conflict is testing whether the stock market’s broad-based growth can hold, and the market will have to balance the positive of corporate earnings strength with the negative of geopolitical risks,” says Alex Guiliano, chief investment officer, Resonate Wealth Partners.

The market has been happy to look past the Iran war so far this year, but it lacked reasons to do so today. Second-quarter earnings season doesn’t begin in earnest until tomorrow. That’s also when Kevin Warsh will testify before Congress for the first time in his capacity as chairman of the Federal Reserve. The Consumer Price Index and Producer Price Index, key inflation readings, aren’t due out until Tuesday and Wednesday.

The most important factor affecting today’s market, though, was the lagging AI trade; the Roundhill Magnificent Seven exchange-traded fund underperformed the S&P 500, as did the iShares Semiconductor ETF. And although the iShares Expanded Tech-Software Sector ETF gained ground on Monday, memory stocks are following SK Hynix lower.

That might be part of a broader rotation underway in the market, or it could be a sign that investors have cold feet ahead of earnings, given how lofty hopes are.

“Taking a broad view, S&P 500 earnings growth is seen strong in the second quarter, with FactSet pegging S&P 500 almost 24% annually,” writes Joe Mazzola, head trading and derivatives strategist at Charles Schwab. “However, that includes more than 60% projected annual growth for the info tech sector, meaning expectations are very high in that one sector…and concentration of earnings growth in the largest names could remain a risk.”

All we can do is wait and see.

The Hot Stock: FactSet Research Systems +6.5%
The Biggest Loser: AppLovin Corp. Class A -12.7%

Best Sector: Energy +3.2%
Worst Sector: Information Technology -2.1%

Retail therapy may be the most widespread form of selfcare among Americans, but even though they’re spending more, they’re not feeling very good.

We’ll get the latest glimpse into their mood later this week, when the University of Michigan releases its Consumer Sentiment index for July on Friday. Consensus estimate is for a 51.5 reading, roughly two points higher than in June.

That would mark multi-month improvement from May, when the reading hit an all-time low amid the Iran War. In other words, consumers felt worse (as they dealt with the energy price spike on top of years of the cumulative effects of inflation) this spring, than they did at any point since the poll began in 1952—worse than during the dot com bust, Great Financial Crisis, or the Covid-19 pandemic.

But another data point this week, the Census Bureau’s retail sales report due on Thursday, may tell a very different story that makes the sad-shopper narrative more complicated. Economists forecast a 0.3% month-over-month increase, after a 0.9% jump in May. Excluding autos, overall sales are expected to decline 0.1%, compared with a 0.8% jump last month.

Investors may rightfully be scratching their heads. If sentiment is really so low, why do Americans keep spending month after month?

The answer is thorny. While lower-income Americans are struggling to cover the basics, people with higher incomes have the ability to deal with higher prices. Wages haven’t quite kept pace with inflation, but household cash balances overall are about a third higher than pre-pandemic trends, Bank of America noted last week. That means the wealthy may be spending some of their stock gains from the four-year bull market, while the poor may be dipping into their emergency funds, as savings rates have fallen to multi-year lows.

No matter what, though, inflation still feels bad. Prices are up about 33% on a cumulative basis since 2019: That’s not ancient history, it’s recent enough for consumers to remember, and even recent relief on staples haven’t brought the cost of Americans’ biggest bills, like housing and insurance, anywhere near pre-pandemic levels. Like everything else, sentiment has also become polarized: Whether someone likes the White House occupant often informs their read on the economy and their personal financial state.

“The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function,” wrote F. Scott Fitzgerald.

For now, investors may have to accept some level of contradiction in consumer data.

Bank of America, Citigroup, Fastenal, Goldman Sachs Group, JPMorgan Chase, and Wells Fargo report quarterly results tomorrow.

The National Federation of Independent Business releases its Small Business Optimism Index for June. Consensus estimate is for a 95.6 reading, roughly even with the May figure, and slightly less than the longer-term average of 98.

The Bureau of Labor Statistics releases the consumer price index for June. Economists forecast a 3.8% year-over-year increase, four-tenths of a percentage point less than in May. The core CPI, which strips out volatile food and energy prices, is expected to rise 2.8%, compared to 2.9% a month earlier.

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