Initial Impulses

Only 10% of S&P 500 companies have reported earnings so far, but sales growth and earnings growth have both come in better than expected based on Bloomberg consensus estimates.¹ Financial services companies dominated the reporting headlines this week, and while trading and capital market activity were highlights amid activity tailwinds, we found consumer perspectives most interesting. Consumer resilience was a theme, with some bank management teams referring to consumer health as “fine” while others emphasized a still-solid labor market as a net positive. Notably, credit health of both consumers and businesses remains a positive, and J.P. Morgan, Citi and Bank of America all reflected stable-to-improving credit conditions. These comments are consistent with Federal Reserve and private survey data.

The other variable we are most focused on is what we learn from companies that miss earnings. IBM suffered its worst single-day stock decline in its 115 year history following a preliminary earnings warning, citing customer demand changes within their overall spend. CEO Arvind Krishna noted, “We saw clients shift their quarterly capex spend toward servers, storage and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.”² IBM’s woes underscored the recent softened Tech sector zeitgeist, with the Philadelphia Semiconductor Index dropping nearly 20% in the last three weeks but still registering a 66% gain so far this year. In essence, it is early and momentum is solid, but we need more technology data points to assess how markets will balance capital raises and capital expenditures relative to required returns.

Although the bulk of technology earnings arrive later this reporting season, Taiwan Semiconductor (TSMC) offers some worthwhile insight into the zeitgeist in the semiconductor space. TSMC is the world’s original and largest foundry, operating as a manufacturer for third-party designed chips. For reference, TSMC manufactured over 12,600 different products using over 300 distinct technologies this past year.³

TSMC drove strong revenue growth of $40.2 billion, which was at the upper end of their guidance for this quarter, and anticipates $45 billion of net revenue next quarter.⁴ Despite a strong quarter and favorable expectations, the stock fell over 2% on Thursday. TSMC increased their AI-related capital expenditures by 12% this year, and a Bloomberg report also cited that TSMC will spend an additional $100 billion to build out four chip plants in the United States, a manifestation of Washington and Taipei commitments solidified earlier this year.⁵

As we have seen through the past few quarters, when companies exceed spending plans, investors can raise concerns. TSMC has had strong performance this year so a slight pullback does not necessarily imply a new verdict or trend. The demand for both basic and advanced chips remains well documented, but as evidence increases of companies looking to optimize their AI spend and focus on returns on investment, the downstream semiconductor implications bear watching.

Chairman Warsh had his inaugural semiannual Congressional testimony this week, addressing both the House and Senate in successive days. In his written commentary, he emphasized that members of the Fed’s Open Market Committee charged with setting interest rate policy “have no tolerance for persistently elevated inflation.”⁹ Further, Warsh noted that “if we get policy right — and we will — the inflation surge of the last five years will be a thing of the past.”¹⁰

The “good stuff” in those Congressional reports tends to come from live questions. When asked about the more favorable CPI data discussed above, Warsh said “there might be some who look at this morning’s data and say ‘Well, mission accomplished, everything is swell.’ That is not my view.”¹¹ Warsh also continued his stance of not providing forward guidance on interest rate changes despite attempts by Congressional questioners to trigger some views.

Our observation is that while Warsh remains taciturn on forward guidance, that void is being filled by other Fed policymakers. Board of Governor Christopher Waller, speaking before the CPI data was released, shared that “we are at a crossroads for policy” and that he is “alert to the risk that the increase in core inflation is a sign that inflationary pressures are spreading through the economy.”¹²

Another voting member, Lorie Logan of the Dallas Federal Reserve Bank, offered perhaps the most perceived “hawkish” or bias toward higher interest rates in an address Thursday at the Fed’s Houston branch. During her speech, Logan highlighted “inflation has been too high, for too long, and does not appear to be on track all the way back to 2 percent. And the inflation risks are to the upside.”¹³

The word we continue to use to summarize potential Fed activity is “optionality.” Given the AI buildout, Middle East conflict, persistent consumer price increases (despite a somewhat benign June reading, headline CPI remains at 3.5%, far above the Fed’s 2% objective) and a still robust economic backdrop, the Fed wants to buy more time before committing either way. But their bias appears to be toward tightening. 

Official Chinese growth statistics released on Wednesday reported China’s economy grew by 4.3% in the second quarter versus last year. The official release highlighted industrial enterprise growth of 5.4% led by equipment manufacturing and high-tech manufacturing.¹⁴ According to the official data, Fixed Assets declined while the trade balance continued to optimize in the year’s first half.¹⁵

Data from any large economy can be volatile, and investors tend to discount official Chinese releases for reasons ranging from veracity to measurement concerns. However, China’s second quarter official release confirmed that the economy was performing below the official 4.5% to 5% range. This underperformance relative to target amplifies the challenges ahead for China.

First, China seeks a seat at the technology ecosystem table. Lithium-ion battery and industrial robot production growth garnered official release headlines, but three other developments were more important this week. Reports circulated that DeepSeek, the AI upstart featuring fewer computing requirements and lower costs, is planning to go public in 2027 and will seek additional private market funding before that occurrence.¹⁶ China’s ChangXin Memory Technologies, the world’s fourth-largest Dynamic Random Access Memory (DRAM) chipmaker, is slated to go public in the coming week and its offering size is nearly twice initial expectations. Finally, and perhaps most importantly, Chinese AI startup Moonshot released a new model on Friday that is both open sourced and highly effective, with some industry experts suggesting it rivals some of the most advanced AI models currently deployed.

Second, China wants to invigorate recurring consumer activity and demand but those goals remain challenged. Total consumer good retail sales grew 1% year-over-year, a non-self-sustaining growth rate.¹⁷ Third, China wants to remain opportunistic with trade amid global conflict; China’s Belt and Road initiative continues to garner attention, with partner country trade up nearly 15%.¹⁸

China has difficult choices amid scarce resources. Choosing to offer ongoing consumer stimulus versus ongoing technology investment may not be mutually exclusive policy decisions, but add in opportunistic trade and ongoing dominance in rare earths and precious resources, and external Chinese capital providers may be asking for more return on investment considerations than China has experienced in recent years.

¹Bloomberg, Northern Trust Wealth Management Research. Accessed on Terminal 16 July 2026.

²Krishna, Arvind. “Arvind Krishna’s Letter to IBM Investors.» IBM Newsroom. July 14, 2026. https://newsroom.ibm.com/2026-07-14-Arvind-Krishnas-Letter-to-IBM-Investors. Accessed 16 July 2026.

³Taiwan Semiconductor Company Information. “About TSMC – Taiwan Semiconductor Manufacturing.” https://www.tsmc.com/english/aboutTSMC. Accessed 16 July 2026.

⁴Taiwan Semiconductor Investor Relations. “Financial Results- 2026Q2.” https://investor.tsmc.com/english/quarterly-results/2026/q2. Accessed 16 July 2026.

⁵Lowenkron, Hadriana and Eastland, Maggie. “TSMC to Spend $265 Billion on US Buildout in Key Trump Deal.” Bloomberg Technology, July 16, 2026. https://www.bloomberg.com/news/articles/2026-07-16/tsmc-to-spend-265-billion-on-us-buildout-in-key-trump-deal. Accessed 16 July 2026.

⁶U.S. Bureau of Labor Statistics. “Consumer Price Index Summary.” Economic News Release. July 14, 2026. https://www.bls.gov/news.release/cpi.nr0.htm. Accessed 16 July 2026.

⁷Ibid

⁸U.S. Bureau of Labor Statistics. “Producer Price Index Summary.” Economic News Release. July 15, 2026. https://www.bls.gov/news.release/ppi.nr0.htm. Accessed 16 July 2026.

⁹Warsh, Kevin. Semiannual Monetary Policy Report to Congress. July 14, 2026. https://www.federalreserve.gov/newsevents/testimony/warsh20260714a.htm. Accessed 16 July 2026.

¹⁰Ibid.

¹¹Quote taken directly from live questioning.

¹²Waller, Christopher. Monetary Policy at a Crossroads. Speech at the New York Association for Business Economics. July 13, 2026. https://www.federalreserve.gov/newsevents/speech/waller20260713a.htm. Accessed 16 July 2026.

¹³Logan, Lorie. “Remarks on inflation, employment, and monetary policy.” July 16, 2026. https://www.dallasfed.org/news/speeches/logan/2026/lkl260716. Accessed 16 July 2026.

¹⁴National Bureau of Statistics of China. “National Economy Operated within an Appropriate Range and New Growth Drivers Developing Rapidly in the First Half Year.” July 15, 2026. https://www.stats.gov.cn/english/PressRelease/202607/t20260715_1964120.html. Accessed 16 July 2026.

¹⁵National Bureau of Statistics of China. “National Economy Operated within an Appropriate Range and New Growth Drivers Developing Rapidly in the First Half Year.” July 15, 2026. https://www.stats.gov.cn/english/PressRelease/202607/t20260715_1964120.html. Accessed 16 July 2026.

¹⁶Fan, Haze and Chen, Lulu Yilun. “DeepSeek Is Preparing For IPO Filing as Soon as This Year.” July 14, 2026. https://www.bloomberg.com/news/articles/2026-07-14/deepseek-mulls-new-funding-weeks-after-7-billion-round-ft-says. Accessed 16 July 2026.

¹⁷National Bureau of Statistics of China. “National Economy Operated within an Appropriate Range and New Growth Drivers Developing Rapidly in the First Half Year.” July 15, 2026.

¹⁸Ibid