MPC Markets Morning Call — 20 July 2026: Chips Crash Into Bear Market as Iran War Spirals

Friday was ugly. The S&P 500 dropped 1.01% to 7,454.74, the Nasdaq fell 1.40% to 25,520.24, and the Dow shed 0.77% to 52,146.42. For the week: Nasdaq down 2.9%, S&P off 1.6%, Dow 0.9% lower. Two-week winning streak, done.

The real carnage was in semiconductors. The Philadelphia SE Semiconductor Index logged its steepest weekly loss in over a year, sinking about 10% in five sessions. It finished Friday 20.2% below its late-June record close, confirming a bear market. And yet the SOX is still up more than 60% for the year. That disconnect tells you everything about how far and fast this trade ran.

SOX vs S&P 500 — Year-to-date performance. Source: LSEG Datastream / Reuters

S&P 500 correction pattern — prior selloff reference. Source: Bloomberg

Among the Magnificent Seven, only Apple finished in the green. Meta dropped 2.8%, Alphabet lost 2.2%, Nvidia fell 2.2%, and Tesla slid 2.6%. Netflix tumbled 7.3% on a weak earnings forecast — third-quarter guidance implied the slowest revenue growth in three years. AJ Bell's Russ Mould called it out: "Netflix disappointments are on their way to becoming a regular series rather than just a one-off event."

Intuitive Surgical was the single-stock disaster of the day, crashing 14.2% after warning that insurance-plan changes were delaying patient procedures. Travelers Companies went the other way, surging 9.2% to all-time highs.

The Magnificent Seven — market value performance over the past year

One bright spot: Q2 earnings season is off to a storming start. Of the 49 S&P 500 companies that have reported so far, 90% beat expectations. Aggregate year-on-year earnings growth is tracking at 26%, up sharply from the 19.2% estimate at the start of April. The banks kicked things off well, and State Street's Michael Arone made a good point: the fundamentals keep being outstanding even as headlines keep raising anxiety.

A rough time in July — companies and sectors that saw sharp gains earlier this year fall. Source: LSEG / Reuters

Beijing-based Moonshot AI unveiled Kimi K3 on Friday, a 2.8-trillion-parameter model it claims rivals systems from OpenAI and Anthropic. Morgan Stanley analyst Gary Yu called it "the largest open-weight Chinese LLM so far" and said it suggests the scaling law still holds. Markets initially treated it as another DeepSeek moment — a broad negative for all of US tech.

But the reaction got more nuanced as the day wore on. K3 is enormous, which means running it requires significant compute. Memory chip stocks like Micron and SanDisk bounced from pre-market lows on that logic. The threat is really to OpenAI and Anthropic's market share, with knock-on implications for hyperscalers and neoclouds bringing capacity online for those frontier labs.

Then came the Meta-Anthropic bombshell. The New York Times reported Meta was in early talks to lease its AI data centres to Anthropic in a deal worth $10 billion. Meta's stock pared losses sharply on the news.

Traders pile into leveraged bets — assets in leveraged ETFs approach $200 billion. Source: Bloomberg Intelligence

The bigger structural story, though, is leverage. It's everywhere. FINRA margin debt hit $1.42 trillion in May — up 66% year-on-year, with a record single-month jump of $112 billion. Leveraged ETF assets have nearly doubled in three months, from $120 billion in April to almost $200 billion by June. Goldman Sachs flagged the build-up across retail margin, leveraged ETF AUM, and short-dated options volume.

Leveraged and margin debt go vertical — ETF assets approaching $200B, FINRA margin debt at $1.42T record

Walter Todd at Greenwood Capital put it bluntly: "People got way overextended on these names. There are a lot of people under the impression over the last couple of months that these stocks only go up. And if they borrowed money to buy the positions, then they're getting called out of them." Options traders, meanwhile, seemed more focused on buying the dip and rotating into less crowded corners than on retreating from stocks entirely. Susquehanna's Chris Murphy said investors have "generally been rotating rather than broadly reducing risk."

The 60-day truce is in tatters. Two American troops were killed in a drone and missile strike on a base in Jordan on Friday — the first US personnel lost since the war's opening days — and a third remains missing. Total US military deaths since hostilities began on 28 February: 16 killed, more than 430 wounded.

President Trump authorised fresh strikes on Saturday targeting IRGC coastal surveillance, air defence, maritime facilities, and missile storage. It was the eighth consecutive night of US airstrikes. Secretary of War Pete Hegseth said the deaths "only stiffens our resolve."

Tehran's response was swift and unambiguous. Supreme Leader Mojtaba Khamenei warned of "unforgettable lessons" and an Iranian negotiator formally declared the Islamabad memorandum of understanding suspended. The ceasefire, due to expire in mid-August, is now functionally dead.

Iranian authorities said 50 people have been killed and more than 500 injured in US strikes since 27 June, including eight killed in a bridge strike on Friday. The US has resumed its blockade of Iranian ports, withdrawn sanctions waivers on Iranian oil exports, and is sending more refuelling aircraft to Israel ahead of a potential expansion of operations. China and Pakistan called on both sides to halt attacks and resume negotiations.

The State Department issued a global travel alert advising Americans to reconsider travel through the Middle East.

Oil ripped higher on the Iran escalation. Brent crude settled at $88.15, up 4.65% on the day and posting its strongest weekly gain since April. WTI hit $82.52, up 4.52%. Pre-war, about 20% of the world's oil supply transited the Strait of Hormuz. Iran has effectively closed it, and the US has reimposed a naval blockade on Iranian ports.

Commodities and currencies — daily and 5-day performance

Gold pushed through $4,015 a troy ounce, up 0.57%. Bitcoin gained 0.85% on the day but was down 4.89% over five days. The AUD rose 0.94% daily, while the US Dollar Index was basically flat at 100.58. EUR/USD unchanged at 1.14, USD/JPY steady at 162.42.

The VIX jumped 12% to 18.74. Not panic territory yet, but the direction is clear.

Cleveland Fed President Beth Hammack was direct on Friday: "Persistently high inflation is the bigger concern. For the first time in my tenure, I'm hearing from businesses who say they think we need to take action to curb inflation, and from consumers who can't make ends meet about a growing sense of despair." Dallas Fed's Lorie Logan called for "modestly higher" interest rates on Thursday.

ASX futures pointed to a 54-point gain (0.6%) for the S&P/ASX 200 at Monday's open — but that was before Trump authorised the latest round of strikes on Iran in the early hours of Sunday. Expect that indication to shift.

Global indices — daily and 5-day performance with technical signals

The ASX 200 dipped 0.50% on Friday with a five-day loss of 0.13%. Japan's Nikkei fell into correction territory, down 4.03% for the week. The Hang Seng was the outlier, gaining 1.44% daily. Across the board, 1-hour technicals are flashing Strong Sell, while weekly signals remain bullish. That divergence says "short-term pain, longer-term structure still intact" — but only if Iran doesn't blow the whole thing up.

US consumer sentiment ticked up to 54.4 in July, a five-month high, mainly on lower petrol prices. Year-ahead inflation expectations eased to 4.2% from 4.6%. Whether that holds with crude ripping past $88 is another question entirely.