US stocks diverged sharply on local time, with the Dow Jones Industrial Average rising 263.24 points (0.49%) to close at 54,349.12, marking its fifth consecutive day of gains and a new record high. The S&P 500 fell 0.17% to 7,723.55 and the Nasdaq Composite dropped 0.83% to 26,363.44, ending a four-day winning streak. The divergence stemmed from AI infrastructure investment concerns triggered by Elon Musk's announcement that SpaceX would exclusively use NVIDIA processors for AI computing infrastructure, which lifted NVIDIA but pressured competitors AMD and Alphabet. Over the prior four trading days, S&P 500 market capitalization had increased by $3.7 trillion, the strongest four-day performance since April, according to Baird investment strategist Ross Mayfield.
Musk Announces Exclusive NVIDIA Partnership for SpaceX AI Infrastructure
Elon Musk stated during an earnings call that SpaceX would exclusively use NVIDIA processors for artificial intelligence computing infrastructure going forward. "SpaceX has the best AI computers," Musk said according to the source. NVIDIA shares rose 3.4% following the announcement. The stock's significant weighting in the Dow Jones index contributed to the index's upward movement. Baird's Ross Mayfield commented that "animal spirits have definitely returned" and described the recent days' volatility as "quite exceptional by historical standards."
AMD and Alphabet Decline on Competitive Pressures
AMD shares fell 7% as the company faced dual headwinds from Musk's NVIDIA-exclusive statement and quarterly guidance that only slightly exceeded market expectations. Alphabet dropped 4% following reports that Google was conducting a major reorganization of its AI division, resulting in the departure of key personnel including Jeff Dean, chief scientist who had been with the company for 27 years. The leadership changes raised concerns about potential gaps in the company's AI strategy during an increasingly competitive period.
SpaceX Reports $18.4 Billion Q2 Capital Expenditure
SpaceX shares fell 13.6%, the largest single-day decline since the company's June IPO. The company reported Q2 capital expenditure of $18.4 billion, six times higher year-over-year, with the majority allocated to AI infrastructure investments. While revenue exceeded market expectations, the substantial AI-focused spending reignited investor concerns about AI investment burdens. The upcoming release of 101 billion dollars worth of lockup shares starting on the 6th added additional selling pressure according to market observers.
According to Reuters, over 75% of S&P 500 companies have reported earnings, with Q2 net income up 31.1% year-over-year, the highest growth rate since 2021. Technology sector net income surged 72%. The S&P 500's 12-month forward price-to-earnings ratio stands at 20.4x, down from 22.2x at the end of last year.
Copper Reaches Record High at $6.7275 Per Pound
Copper prices rose 1.3% to $6.7275 per pound, a record high since 1988. The metal has gained 19% year-to-date and 11% since the Iran conflict began. Gold spot prices surged 4.2% to $4,247.37 per ounce, the highest level since June 18. Crude oil showed mixed performance, with WTI September futures falling 0.73% to $75 per barrel and Brent October futures rising 0.11% to $79.45 per barrel. News that Iran reached an agreement with Oman on shipping routes through the Strait of Hormuz applied downward pressure on oil prices.
ISM Services PMI Misses Consensus at 54.1
The July ISM Services PMI came in at 54.1, slightly above the prior month's 54.0 but below the consensus estimate of 54.5. The employment index fell to 47.4, the lowest reading since March, indicating signs of hiring slowdown. Market participants expect confirmation of this trend in the July employment report scheduled for release on the 7th. Minneapolis Federal Reserve President Neel Kashkari stated in a CNBC interview that the Fed should begin gradually adjusting policy rates from this point forward.
Individual stock movements included Shake Shack, which rose nearly 9% following news that activist fund Starboard Value acquired a stake. Starboard Value CEO Jeff Smith told Bloomberg the fund had secured a position worth hundreds of millions of dollars and was likely the company's largest active shareholder. Disney gained over 3% despite revenue slightly missing expectations, supported by earnings-per-share surprises and solid theme park performance. Morgan Stanley analyst Sean Dipley maintained an Overweight rating with a $123 price target, stating "there's a lot to like."
The 10-year Treasury yield held steady at 4.61%, while the dollar index declined 0.2%. Truist strategist Keith Lerner stated that "earnings are still our North Star and the economy is showing resilience, and valuation burdens have been substantially alleviated," supporting a bullish outlook. Nationwide's Mark Hackett took a more cautious view, noting that "negotiations with Iran remain on thin ice, so continuing the recent record high rally is the next challenge."
FAQ
What caused the divergence between the Dow Jones and Nasdaq on this trading day?
The Dow Jones rose 0.49% to a record high of 54,349.12 while the Nasdaq fell 0.83% to 26,363.44 primarily due to Elon Musk's announcement that SpaceX would exclusively use NVIDIA processors for AI infrastructure. NVIDIA's 3.4% gain boosted the Dow, but the same announcement pressured NVIDIA competitors AMD (down 7%) and Alphabet (down 4%), which have larger weightings in the Nasdaq index.
Why did SpaceX shares fall 13.6% despite reporting revenue that exceeded expectations?
SpaceX reported Q2 capital expenditure of $18.4 billion, six times higher year-over-year, with the majority allocated to AI infrastructure. While revenue beat estimates, the substantial AI-focused spending reignited investor concerns about AI investment burdens. Additionally, 101 billion dollars worth of lockup shares were scheduled for release starting on the 6th, adding selling pressure.
What did the July ISM Services PMI indicate about the US economy?
The July ISM Services PMI came in at 54.1, slightly above the prior month's 54.0 but below the consensus estimate of 54.5. The employment index fell to 47.4, the lowest reading since March, signaling a hiring slowdown. Market participants are watching for confirmation of this trend in the July employment report scheduled for release on the 7th.
