US equities push higher as Fed rate-hike fears ease

Dow Jones leads gains as markets reassess Fed outlook

United States (US) equities finished a shortened 4 July holiday week mostly higher, with the blue-chip Dow Jones leading the charge. In our third-quarter (Q3) outlook on US indices two weeks ago, we flagged three key risks for the quarter.

The first was the potential for a more hawkish Federal Reserve (Fed) in the second half of 2026. However, Fed Chair Kevin Warsh’s comments last week that inflation risks had eased, alongside a cooler-than-expected non-farm payrolls report, have significantly reduced those concerns and we can move rate-hike worries to the back burner for now. This morning’s strong gains in US equity futures appear to bek a delayed reaction to that more supportive backdrop.

The second risk remains the fragility of the Middle East peace deal. Our base case is that the uneven reopening of the Strait continues and the current 60-day ceasefire is extended when it expires in mid-August – and likely again thereafter, carrying us through the midterms and into year-end. That said, a non-negligible approximately 10% risk persists that something goes badly wrong, whether a flare-up in the Strait, renewed Houthi activity, or an escalation between Israel and Hezbollah that reignites broader conflict.

The third risk we noted was centred on technology stocks and questions around valuations, capital expenditure (capex) and earnings.

AI valuation concerns continue to weigh on technology stocks

Since then, these questions have only intensified, with the Philadelphia Semiconductor Index (SOX) now down more than 12% over the past fortnight while names like SanDisk, Marvell Technology, Arm Holdings and Hewlett Packard Enterprise have fallen by more than 20% during the same period. Within the Magnificent Seven (Mag 7), Microsoft has broken below its March lows, while artificial intelligence (AI) chip darling Nvidia closed on Thursday at $194.82 – 17.50% below its $236.54 record high from mid-May. Amazon and Alphabet are not far from falling into bear market territory either.

Meta Platforms’ warnings last week that AI agent development ‘has not accelerated in the way we expected’, coupled with comments on potentially monetising excess compute capacity, have reinforced the view that the AI boom may be entering a near-term digestion phase. Whether upcoming second-quarter (Q2) earnings provide clarity on these concerns remains to be seen.

Markets turn attention to services data and Fed minutes

Looking ahead, the data calendar this week is relatively light. Tonight’s Institute for Supply Management (ISM) services purchasing managers’ index (PMI) is the main release, previewed below, followed by the Federal Open Market Committee (FOMC) meeting minutes on Thursday morning. However, those minutes will likely feel somewhat dated after Chair Warsh’s recent comments and the soft payrolls data.

US: ISM services PMI

[Paragraph & bold] Date: Tuesday, 7 July at 12.00am AEST

Last month, the ISM services PMI rose to 54.5 in May, beating expectations and marking the strongest reading in three months as business activity and new orders accelerated.

Within the details, the employment sub-index remained in contraction territory for a third straight month (47.9 versus 48.0), while price pressures intensified to their highest level since August 2022 (71.3 versus 70.7), with diesel, gasoline and oil-related products driving the gains.

The consensus is for the June reading to ease modestly to around 54.0, reflecting a still resilient but cooling services sector amid higher input costs and some pullback in demand momentum.

US services PMI chart

Nasdaq 100 technical analysis

From its late-March low of 22,841, the Nasdaq 100 launched a 35% rally in just over nine weeks to reach a record high of 30,762 in early June. The rally was in line with our bullish calls, although it did hit the 30,000 target some six months earlier than we were expecting.

In that context, the current pullback is hardly surprising, and the correction continues to evolve within a contracting triangle.

A decisive break and close above the 30,642 – 30,762 resistance zone would signal the correction is complete and open the way for a push towards 31,500 – 31,200. Conversely, a break back below the recent 28,890 low would open the door to a deeper pullback towards the June low in the 28,200 – 28,000 area.

Nasdaq 100 cash daily chart 

Dow Jones cash technical analysis

From its late-March low of 45,063, the Dow Jones surged 14.5% in just over nine weeks to reach a record high of 51,665 in early June. After a brief pullback in early June, the index has regained momentum and pushed to a fresh record high, reaching 52,909 last week.

While the push to record highs has erased the signs of bearish relative strength index (RSI) divergence noted last week, it has raised fresh concerns that the market is overbought. Nonetheless, while the Dow Jones remains above short-term support at 51,600 – 51,300, allow the rally to extend towards 54,000. Be aware that a break of that support zone would be an initial indication that a pullback towards 50,000 is underway.

Dow Jones cash daily chart

The figures stated are as of 6 July 2026. Past performance is not a reliable indicator of future performance. This report does not contain, and is not to be taken as containing, any financial product advice or financial product recommendation.