Last week marked the end of Q2, and the AI demand narrative remained the main driver that propelled markets forward. The S&P 500 ended the quarter up nearly 15%, while the Nasdaq 100 ended up over 21% as technology stocks outperformed. Within technology, semi and memory stocks experienced huge gains, with the semiconductor index SOX up nearly 88% in Q2 and its biggest rally since it was created in 1993. Towards the end of the quarter however we did start to see some signs of AI concern around higher input costs, with the Mag 7 names such as MSFT, AMZN, and META all experiencing significant negative returns in June. Outside of AI and a strong earnings season, the other positive catalyst for the quarter was progress towards a resolution between the US and Iran, although it didn’t come without hiccups and volatility. Despite what seems to be a very fragile ceasefire deal, markets have priced in little future supply issues, with oil prices falling almost back to pre-war levels.
Towards the end of the week last week we saw a big pullback in semi stocks, which seems to be more profit taking and a rotation into underperforming sectors than being driven by the fundamentals or their near-term outlook. On the economic front, the June jobs report offered something for both hawks and doves. For hawks, the decline in the unemployment rate reinforces the view that the labor market remains in decent shape, allowing the Fed to keep its focus on inflation. For doves, however, a lower labor force participation rate suggests the economy is not overheating as much as previously feared. Together, these trends make additional rate hikes in 2026 increasingly unlikely. At the same time, the Supreme Court ruled that Fed Governor Cook could remain in office, strengthening the independence of the Federal Reserve and providing greater job security for Chair Warsh and the rest of the Board. Going into the second half of the year it’s likely that AI will continue to be a dominant market theme, while inflation will also stay in focus. A major tailwind for the economy and the markets would be if the energy price passthrough to other areas ends up being brief and limited, allowing the disinflation trend to resume.
June Jobs Report
The June jobs headline number came in weaker than expected, with nonfarm payrolls up 57k for the month compared to 110k consensus expectations. Additionally, payroll growth for the prior 2 months was revised down. Leisure and hospitality saw a decline in employment of 61k, reversing the job growth we saw in May. Healthcare and social assistance saw the largest job gains (47k), followed by professional and business services (36k). Average hourly earnings increased 0.35% for the month, with the year-over-year rate at a still healthy 3.5%. The unemployment rate unexpectedly ticked down to 4.2% from 4.2%, but this was due to a drop in the participation rate. The labor force participation rate fell quite significantly, from 61.8% to 61.5%, a drop of 720k and the lowest participation rate since March 2021. Breaking it down further, participation amongst young prime-age workers (25-34 years) fell 1.6 percentage points, the largest monthly drop recorded outside of the pandemic. It’s unclear the reasoning behind this, although it could be a sign of some long-term job seekers giving up in the current market.
A measure that has been showing signs of concern the past few months is the number of long-term unemployed (unemployed for 27 weeks or more). However in June, this measure slightly improved as the long-term unemployed declined by 51k for the month. This group of unemployed still accounts for 27% of the unemployed though, so it still needs to be monitored. Given that this jobs report wasn’t particularly strong and that at least of now energy supply headwinds look to be easing, the Fed may feel more comfortable keeping rates unchanged for a while. The market is still expecting a hike in September, although the odds of that have fallen over the past week.
Tech Update: Apple and Meta Focus on Profitability
Throughout 2026, there has been a growing divergence between the AI Capex spenders and the recipients of that spending, as shown by the Mag 7 feeling the pressure throughout the year, all the while the SOX index just posted its best quarter in history in Q2 of this year. This exuberance appeared to show some signs of cooling toward the end of last week, as the companies driving AI Capex now have to deal with higher hardware costs while also proving to shareholders that these investments can generate meaningful returns. Apple, in order to navigate the higher memory prices of 98% in Q1 and potentially another increase of 58-63% in Q2 of 2026, has been lobbying the Trump administration to soften any political fallout if the firm begins buying memory from Chinese memory makers.
The two memory firms Apple is considering adding to its supply chain are currently black listed by the US government for alleged ties to China’s military, but the move, if allowed, serves more as a template for other firms feeling the squeeze of higher memory prices and could serve as a short term release valve for memory prices until additional capacity comes online from the large memory such as Samsung, SK Hynix and Micron. Meanwhile, META’s pivot is indicative of the growing pressure hyperscalers face to demonstrate a return on their years of increasing capex.
As a result, META has decided to pivot towards renting out some of its excess compute rather than using it 100% internally, mimicking similar cloud business models from AWS, Azure, and Google Cloud. This pivot has sparked some market anxieties about a potential overbuild in the AI infrastructure layer, but that read appears premature, as META’s decision is more likely them conforming to the existing cloud business models rather than a lack of utilization. However, if a broader trend emerges of hyperscalers increasingly allocating excess data center capacity to third-party customers, it may signal an overbuild problem within the hyperscalers. Overall, the emerging theme from these stories is that the hyperscalers are now shifting from solely expanding capex to focusing on their profitability after the spending, yet as these companies begin to adjust to the current reality, the implications could extend well beyond the technology to other sectors exposed to the theme.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
Last week marked the end of Q2, and the AI demand narrative remained the main driver that propelled markets forward. The S&P 500 ended the quarter up nearly 15%, while the Nasdaq 100 ended up over 21% as technology stocks outperformed. Within technology, semi and memory stocks experienced huge gains, with the semiconductor index SOX up nearly 88% in Q2 and its biggest rally since it was created in 1993. Towards the end of the quarter however we did start to see some signs of AI concern around higher input costs, with the Mag 7 names such as MSFT, AMZN, and META all experiencing significant negative returns in June. Outside of AI and a strong earnings season, the other positive catalyst for the quarter was progress towards a resolution between the US and Iran, although it didn’t come without hiccups and volatility. Despite what seems to be a very fragile ceasefire deal, markets have priced in little future supply issues, with oil prices falling almost back to pre-war levels.
