(July 28): A sell-off in chipmakers sent stocks wavering, offsetting a decline in oil prices, as pressure keeps building for the biggest spenders on artificial intelligence to justify their investments.

While most S&P 500 shares rose, the index was little changed. A gauge of semiconductor giants fell 2.2%. The cost of protecting Nvidia Corp’s debt against default surged amid a round of AI deals worth more than US$750 billion (RM3.06 trillion). SK Hynix Inc slipped below its US initial public offering price. ASML Holding NV sank on a report that a Chinese state-backed firm is producing certain chipmaking machines that could threaten its sales.

Those concerns emerged ahead of results from a handful of megacaps, keeping a lid on equities. Brent crude settled around US$88 as the US held off attacking Iran for a third straight day. Bond yields dropped, with inflation fears easing in the countdown to the Federal Reserve decision.

“This is a week with more than its fair share of potential surprises, good and bad,” said Chris Larkin at E*Trade from Morgan Stanley. “Geopolitics and oil prices may be the biggest wild cards, but a bullish response to strong Magnificent Seven earnings isn’t a given, especially if AI spending levels continue to raise eyebrows.”

The Fed is expected to leave rates unchanged on Wednesday, but the possibility of a hike is higher than it’s been in a while, he noted. That means: Choppy trading could persist, Larkin concluded.

On the geopolitical front, President Donald Trump said the US and Iran were engaged in diplomatic talks to end their conflict, but warned the two sides would return to fighting if negotiations didn’t yield a deal.

“The only reason they want to meet is because we’ve been hitting them very hard,” Trump told reporters. “There’s a good chance that something could happen. If it doesn’t, we go back to doing what we were doing.”

Separately, Iran and Oman are trying to reach an agreement to restart shipping through the Strait of Hormuz, according to people familiar with the matter.

“In yet another example of where stocks are headed once the Iran conflict is over, a suspension of attacks over the weekend has pushed crude oil prices lower, and interest rates are following,” said veteran strategist Louis Navellier. “That implies further equity upside when the conflict is fully over.”

JPMorgan Chase & Co’s market intelligence desk led by Andrew Tyler said its tactical positioning monitor is pointing to “material upside” for the S&P 500, while flagging risks stemming from crowded positions in semiconductor stocks and the Iran war. 

Still, the team continues to be “tactically bullish,” anticipating US equities will benefit from lower bond yields, a weaker dollar and strong corporate earnings.

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