Will Volatility Catch Fire with US-Iran Attacks or Google, Tesla, SK Hynix Earnings?

While there were a few highlights of volatility this past week, the broader markets managed to maintain this risk-on oriented stability. Can optimism hold fast – much less expand – amid an escalating US-Iran war and the first wave of AI company earnings?    

Talking Points:

• The bulwarks of stubborn risk appetite – including the Nasdaq 100 and S&P 500 – slipped this past week but major technical boundaries still stand  
• Confidence founded in passive summer doldrums conditions is facing greater and greater pressure from erosion in leading themes for both the bullish and bearish camps   
• Scheduled event risk will continue to throw sparks at the strained capital markets in the week ahead include top listings like tech earnings, Japanese data and July PMIs   

 

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Sparks of Volatility But No Fire    

The prevailing winds of speculative confidence that have kept the markets on course for its broader capital market advance since the recovery from the ‘Liberation Day’ tariff swoon in April last year – including through the initial outbreak of the US-Iran war – are still in place. However, concern and scepticism are finding greater purchase across the capital markets as thematic fundamental engines like the euphoria behind an industrial AI value pivot meet greater scrutiny, while headwinds from the ongoing war and souring traditional macro backdrop build. Referring to generalized seasonal averages, we are traversing a period that has skewed towards calm via volume and volatility, which in turn has supported a positive investment bias. That said, complacency is not a strategy and can lead market participants to invite greater exposure – and ultimately losses - than they would otherwise tolerate if actively surveil market conditions. It’s always better to actively monitor.

In the ‘holy trinity’ of analytical techniques (fundamentals, technicals and market conditions), we are attempting to establish forecasts of direction and temperament for a large and convoluted market driven by many conflicting motivations. Market conditions – a reflection of participation and the general demeanor of the masses – seems to still endorse general complacency, even if there has been an increase in the bolts of volatility. The fundamental backdrop also seems to be in a state of transition but still favoring the promising elements. This is the kind of environment where technical analysis can help anchor the messy perspective of sentiment into tangible shifts in capital flows. Notably, at the end of this past week, we were met with a meaningful retreat from the major US indices – the inspirational leaders of risk appetite. The Nasdaq 100 offered the most impressive move with a break to five-week lows. That said, June’s low is still in place; and its major counterparts were far less pressed on signaling a tipping point. The S&P 500 dropped comfortably to the middle of its multi-month range while there is debate that can be had that Dow Jones Industrial Average may not have even broken its bullish trend and is only a week (and less than 2 percent) off its record high. 

Chart of Nasdaq 100 Overlaid with Inverted VXN Volatility Index (Daily)

Source: TradingView.com; John Kicklighter

 

There is a reason to look to ‘risk’ benchmarks with a heavy optimism tendency, as with the major US equity indices, as a higher order measure of global intent. Referencing these more stubborn benchmarks may not provide the timeliest signal that conviction is rolling over from ‘bulls to bears’ or ‘greed to fear’, but it can help reduce the false signals from more sensitive and/or representative measures. That said, there has been a corrosion in market conditions behind the strong façade presented by the Nasdaq 100. Setting aside the fundamentals for a second, there have been notable shifts in markets and capital that can signal tentative concern and others that speak to greater risk taking. The retreat in AI/tech proxies relative to other more diversified speculative benchmarks undercuts one of the areas of open-ended interpretation of untapped value in the markets. The Nasdaq 100 – Dow ratio has reversed more than half its 2026 bull leg, a 21 percent climb from trough to peak. Meanwhile, record options volume levels belie a speculative turnover not denoted in the underlying. That should be a point of concern considering FINRA has reported that US investors have built up a record level of ‘leverage’ through its June update and amid reports that 1.2 million retail traders received margin calls amid the KOSPI’s extraordinary (over 30 percent peak to trough) reversal within the last month.  

US Investor Leverage as Measured by FINRA

Source: Standard & Poor’s; FINRA; John Kicklighter

 

The Kindling Should Fear Indeed Catch    

If we were to see market conditions shift such that there is greater deference given to ‘bad news’ versus ‘good’ and volatility counter seasonal norms, then the deep fundamental channels should that we have seen dominate headlines these past months should be our focus. The retreat in confidence surrounding AI’s transformative value potential is arguably the greatest threat to this last bull leg’s fundamental thesis. Looking to an even more concentrated view of this theme than the Nasdaq 100 – Dow ratio, the PHLX Semiconductor Index – Nasdaq 100 pairing has pulled back as much as -17 percent in the past month, the largest drawdown in the 138 percent climb since the Liberation Day low (April 2025). We have seen other hits to AI darlings both at the core and in the periphery recently. At the symbolic center of South Korea’s KOSPI tumble, SK Hynix, which just recently started trading in US markets, has lost -37 percent in value on a close-over-close basis from June 22nd to this past Friday. IBM collapsed a record -25 percent in a single day this past Tuesday on an pre-earnings announcement that the company mistimed its AI efforts to show tepid results for extraordinary spending. How many other companies with massive Capex outlays are going to inevitably disappoint against more critical calculations by investors? Firms like Google and Tesla will wade into these waters this week.   

Chart of the Nasdaq 100 to Dow Jones Industrial Average Ratio (Daily)

Source: TradingView; John Kicklighter

 

Where AI is a bull’s theme that is at risk of losing traction, the trouble around the resurgence of the US-Iran war is a bear’s beacon that threatens to crowd out other interests that market participants may pursue. The rhetoric and military engagement between the two countries has only intensified through this past week. Iran threatened to shift from a ‘defensive’ to ‘offensive’ posture last week, and the US intensified attacks on infrastructure. Despite the tangible actions between the two sides, US (WTI) oil rose only 14 percent and UK (Brent) oil 17 percent last week. That may seem a large advance, but relative to the volatility of previous months, it is remarkably restrained. In fact, implied volatility behind US crude (OVX) is staged at 60 relative to a high of 120 in early March. It isn’t that this war doesn’t represent a tangle threat to global order and economy. Rather there is likely a belief that the White House and Tehran will cease actions soon rather than push each other into a more severe position. For the US, the same ‘economic catastrophe’ President Trump said he was looking to avoid with the MOU – a critical threshold for oil inventories – was not materially improved in the few weeks of ceasefire. Market participants are likely aware that that stop loss is close at hand and assume it will force a resolution – or as the detractors refer to ‘a TACO’. 

US Oil Inventories and Weekly Change (Weekly)

Source: MacroMicro.com; EIA

 

Some Key Macro Event Risk but Few Unassailable Catalysts   

While we may ultimately see the markets succumb to a major macro theme over time, headlines and iterative market volatility; economic event risk can still play a role in offering definable catalyst to ignite a fire behind more thematic matters. Relative to the US-Iran engagement or AI hope, there is limited offering to provide a meaningful charge. That said, key tech earnings updates and regular weekly oil inventory reports are worth keeping close tabs on. Meanwhile, there is much more on offer that will speak to downstream consequences of the headlines and volatile sentiment we’ve been dealing with. Some central bank decisions, June inflation reports and July PMIs for growth insights gives important insight. For context around reaction to this week’s event risk versus the restricting inflation of anticipation for what’s ahead, the following week’s docket is laden with consequential event risk including higher profile rate decisions (FOMC, BOJ, BOE), official Q2 GDP reports (US, Eurozone) and additional Mag 7 earnings releases among other key listings. 

Calendar of Major Macro Economic Event Risk
 
Source: John Kicklighter

 

A Pivot to Tech Earnings with a High Flyer Under Pressure    

Consulting the global macro calendar, arguably the most consequential event risk on tap this week are the AI-focused earnings releases. Given the role this theme has played in lifting the global capital markets, there is a high probability that a consequential move for any of the key listings that triggers a general tech response can cascade into a general risk sentiment response. While the Nasdaq 100 and SOX are good overviews of the health of undercurrent, we should gauge the particular response of a few particular names. Early morning Wednesday, South Korea’s second largest company by market cap, SK Hynix, will report early in the Asia session. Given the extent of its retreat and the recent opening of trading on US exchanges, there will be an even more amplified interest. On the same day, after the New York session close, Google and Tesla will offer the first Mag 7 earnings releases of the quarter. The former is the third largest company by market cap and arguably carries more consequence. However, Tesla has also made an effort to compete in the AI race with Grok and the enormous IPO of Musk’s SpaceX will given another dimension of potential conglomerate building. 

Chart of QQQ Nasdaq ETF Overlaid with Google, SK Hynix and Tesla (Daily)

Source: TradingView; John Kicklighter

 

Taking in All Key Macro Japanese Data with USDJPY Parked at 162  

Among the different, national economic calendars worth keeping track of over the coming week, Japan should be near the top of any global macro-observer’s list. While every nation has is strong and weak points, Japan continues to find itself struggling between its remarkably low yield environment, irksomely persistent inflation, domestic economic struggles, political pressures and its status as a top five economy. In particular, the deflation of the national currency is an unrelenting and prominent issue. The Yen is at multi-decade lows and threatening to tumble lower. For FX observers, that is tracked as (upside) pressure through USDJPY above 160. There are a run of interesting updates we could monitor for influence here from the government’s sale of 40-year government debt, the BOJ buying JGBs on the open market, the June trade balance and the July PMIs on Friday morning. However, I would place the national inflation (CPI) update for last month at the top of the list for attention. With the BOJ rate decision the following week and energy prices back on the rise in July, this data will draw an inordinate amount of scrutiny by policy officials and traders.    

Chart of USDJPY Overlaid with US-Japan 2-Year Yield (Daily)

Source: TradingView.com; FRED; John Kicklighter

 

A Quaint Growth Outlook Update     

Timely updates on comprehensive economic readings are few and far between in the global markets. That should make measures like the S&P Global’s monthly PMIs (manufacturing, service and composite) highly value releases with a proportionate market influence. In reality, this data tends to generate limited volatility in FX and local capital markets when they hit the wires. Nonetheless, the historical alignment these timely economic activity updates hold to official and severely lagging government GDP releases should earn our appreciate – even if to just level set practical growth forecasts and not expect the market to amend its immediate course. For these July readings, we should be looking to see if the economic stability registered through the final readings of June (sans the UK which dipped into contractionary territory) holds up amid the resurgence of warn in the Middle East. The survey timely is likely to register some of the resumption of military activity and their downstream consequences, but it would still be early days to assume catastrophe. If the pacing is still steady and stable, it would echo the IMF’s mid-cycle update with a similarly sanguine reading; but beware if the warnings grow suddenly stark.    

Major Developed World Economy Composite PMIs (Monthly)

Source: Standard & Poor’s; John Kicklighter

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-- Written by John Kicklighter, Global Head of Content