In this July 20, 2026 morning market commentary, Kenny Polcari delivers a comprehensive overview of recent market turbulence, focusing on a sharp semiconductor sell‑off driven by concerns over AI cost structures and geopolitical tensions. He explains how a Chinese AI startup, Moonshot, introduced a low‑cost multimodal LLM, reigniting fears that cheaper AI models could reduce demand for high‑end GPUs, prompting a broad de‑risking of semiconductor stocks despite strong earnings from Taiwan Semiconductor, Micron, ASML, and Samsung. Polcari frames the sell‑off as a “sell‑the‑news” reaction and a positioning problem rather than a collapse of the AI narrative, noting that the sector remains up 74% YTD. He reviews sector performance, highlighting energy’s modest gain, the outperformance of defensive/value stocks versus growth, and the rise of inverse ETFs and volatility products as short‑term insurance tools. Macro factors such as rising oil prices (driven by renewed Iran tensions), steady bond yields (with the 10‑year above 4.5% and 30‑year above 5%), and flat gold are discussed. Polcari outlines the upcoming earnings calendar across consumer, industrial, and tech companies, and the week’s economic data releases. He advises investors to stay diversified, manage risk, and consider a complimentary portfolio review. The segment concludes with a detailed Calabrian shrimp scampi recipe, tying the market’s “hot and angry” mood to a spicy dinner.
Chapters
Well, good morning. Yes, it's me, Kenny Polcari, coming to you live from Cape Cod once again. And what a glorious day it's gonna be. Look behind me, the sky is blue, the water is calm. It's gonna be a perfect day. Today is Monday, July 20th, 2026, and here are the things that you need to know. Well, stocks closed out the worst week in 3 weeks last week. The semis, well, they're now officially in bear market territory, but slow down on that for a minute. TSMC crushed it and gets sold. Netflix, well, they disappoint and they got sold too. China introduces another tech disruptor. Okay, whatever. Bonds are up, yields are steady, oil is up, and gold is flat. And what do we have for dinner tonight? We're gonna have the Calabrian shrimp scampi. Wait until you get a load of that. Look, the major, uh, the major averages ended the week under pressure last week as the semiconductor sell-off just accelerated along with geopolitical tensions flared up once again in the Middle East. And investors, well, they continue to question the economics of the AI revolution, even as Taiwan Semi crushed it and then got sold down about 3%. Friday morning brought us news that Moonshot, a Chinese AI startup, introduced a cheaper, competitive LLM model, and it reopened the whole Deepseek panic playbook that sent stock— tech stocks reeling back in January of '25. Investors need to ask, If a company in China can build an open-weight multimodal frontier LLM AI model, that's a mouthful, at a fraction of the expected cost, are hyperscalers really gonna need all the GPU service and power generation that the market has been pricing in? And that was the real spark behind the chip unwind on Friday. My quick observation is yes, because when history has shown us that something gets less expensive, expensive, we tend to buy more of it. In fact, falling costs don't kill demand, they actually accelerate adoption. Look, we have to be honest. What happens to the AI trade when even the best earnings aren't good enough? Taiwan Semi, Micron, ASML, and Samsung all crushed it and all offered robust guidance over the past month, yet they still got sold. But remember, we discussed this in early July before this— before the earnings season when I said that the bar had been raised this earnings season, and stocks were priced to perfection. So no one should be surprised if we see a sell the news type of reaction in stocks, which is what we're seeing. The selling then spread across the entire semiconductor complex on Friday, dragging down companies that hadn't even reported yet. Nvidia, AMD, Marvell, Storage Technologies, and Intel— they weren't punished for disappointing earnings. They were caught in this broad sector-wide de-risking as hedge fund traders and even some large asset managers locked in gains and reduced exposure to some of the markets biggest winners this year. Again, I don't think it means that the AI story is broken. I think it just means that the bar was set too high. Again, we talked about that. So when a beaten raise gets punished, that's not really a stock problem. That's a positioning problem, right? Because it's a crowded trade. Everybody is in on it. So in the hedge funds and the Momo guys who piled in and pushed prices higher to perfection, there's nobody left to buy at the margins and push these names even higher from here. Right? Which doesn't really mean that there isn't anyone left to buy. Of course there are. Long-term investors are happy to back up the truck and step back in when stocks finally get, uh, repriced, right? And the opportunity to buy these great companies at prices that they couldn't justify just a couple of weeks ago, reminding us that this is a reset in expectations and not a collapse in the AI story. Adding to the pressure last week was Netflix. It was down 7.5%. Now, while earnings were solid, guidance disappointed investors just enough to remind everyone how unforgiving this market can really be. And then add crude oil ripping up through $81 a barrel on renewed Iran tensions, and suddenly Friday was a risk-off session. The Dow gave up 406 points, or 8/10. The S&P lost 76 points, or 1%. The Nasdaq lost 362 points, or 1.4%. The Russell lost 12 points. The transports gave up 102 points or half a percent. The equal-weight S&P lost 68 points or 8/10, while the Mag 7 gave back 622 points or 1.8%. The Semiconductor Index suffered its worst week since April 2025 and is now down 24% from the recent high, putting it officially in bear market territory. But let's just remember one thing. The sector is still up 74% year to date. So don't make this a disaster story by any stretch of the imagination. It is, though, a stunning reversal for a group that just weeks ago couldn't seem to do anything wrong. But the losses weren't limited just to semis. We saw disruptive tech take a hit, down nearly 2%, software down 1%, robotics and AI down 3%, quantum stocks down 9/10. Memory names, though, well, they advanced by 6/10, which might make some sense as the group is now down 34% off its most recent high just 4 weeks ago, right? Think the Momo guys just puking it out. And that put the group deep into bear market territory when the fundamental story hasn't really changed, which suggests bargain hunters are beginning to dip their toes back in the water. Of the 11 major sectors, only energy advanced, gaining 1.2% on the day. The other 10 sectors fell, with communications taking the biggest hit, down 1.8%. Consumer discretionary was down 1.6%. The other 8 sectors were down, but less than 1%, suggesting that this wasn't the kind of indiscriminate panic selling that typically marks the beginning of a broad market correction. Instead, investors continued to reduce the risk in the market's highest-valued growth names, right, while showing a willingness to really hold on those positions that were more defensive and value-oriented sectors. The value trade, in fact, only lost half a percent. While the growth trade was down 1.5%, or almost 3 times as much. On the other hand, the contra trades advanced. The inverse ETFs, the SH, which is a short S&P, added 1%. The DOG, that's short the Dow, up 0.7%, while the PSQ, which is short the triple Q's, added 1.5%. The triple short S&P, the SPSX, gained 3%, while the VIXI ETF gained 5.3% as the volatility index surged by more than 12%. Taking it up and through the short-term and long-term trend lines, only to leave it kissing the intermediate-term trend line at $1960. Now remember, these are tactical strategic trading vehicles. They're not long-term investments. They're designed to provide short-term portfolio insurance during periods of market stress. Once the pressure usually eases in the market, you typically close out these hedges and redeploy the capital. Okay, oil, as I pointed out, surged higher on Friday, rising 4.5% to end the day at $82.50, now up 27% off the July 2nd low of $67, putting it above all 3 trend lines and leaving it now in the $82-$100 trading range. Over the weekend, the US continued to bomb military targets and communications networks in Iran as the conflict once again shows no signs of easing. Overnight, oil tested $82 and held it And this morning it's trading at 82.15. Bonds caught a small bid on Friday. The TLT up 4/10, the TLH up a quarter of a percent. The 2-year ended the day yielding 4.17, the 10-year at 4.55, and the 30-year is still hanging at 5.07%. Levels that remain an issue for the markets. Again, something that we have discussed ad nauseam. Recall the danger zone conversation when the 10-year stays above 4.5 and the 30-year stays above 5%. They raise borrowing costs, they pressure stocks and offer investors an alternative. As long as yields remain elevated, they create a higher hurdle for stocks, especially the high multiple sexy growth names that have led this market higher. It's another reason why investors are, quote unquote, selling the news. Gold continues to trade in the $4,400 range this morning. It's flat at $4,018. This week's earnings calendar gives us a cross-section of the entire economy. We'll get consumer spending with GM and American Express and American Airlines. We're going to see what industrial demand looks like from 3M, defense and spending from Northrop Grumman and Lockheed Martin. We're going to get AI and technology from Google, Tesla, IBM, and Intel, wealth management from Charlie Schwab. And we're going to get communications from Verizon Telephone and T-Mobile. By the end— by the time the week is over, we're going to be exhausted.. But we should have a much clearer picture on the health of the US economy and whether stocks remain overpriced. ECO data this week includes the Philly Fed Services Index, really the non-manufacturing, Kansas City Fed Manufacturing, S&P Manufacturing and Services PMIs, new home sales, and building permits. That takes us through the whole week. Now, this morning, European markets are higher as the chipmaker sell-off takes a breath and investors consider the weekend events across the Middle East and Iran. U.S. futures are up this morning. Dow futures are up 163. The S&P's are up 28. The Nasdaq's up 202, and the Russell is up 10 as we prepare for another week of excitement. The S&P closed at 7,457, down 76 points after breaking below trendline support at 7,454 to trade as low as 7,431. This morning, the tone is more positive. The moonshot thing is not top of mind as investors await today's action. The question now is, will we hold support at 7,440 or not? If, if we don't, then that opens the door for the S&P to test 7,300-ish. Now, this week and next week are going to be two big weeks for earnings, so expect markets to be even more sensitive to the headlines. If we continue to see a sell-the-news type of event, then expect markets to struggle, which will only cause more anxiety for some investors. Remember, markets have a funny way of humbling investors, right? That's exactly why you need to diversify. That's exactly why we manage risk, and that's exactly why investing is a marathon and not a sprint. You want to stay disciplined, you want to stay diversified, and don't let the headlines force you into making an emotional decision. You can give me a call at 561-931-0190. What's the discuss your goals, your timeline. We can assess the risk in your portfolio and your tolerance for the expected volatility that's going to come. I'm always happy to do a complimentary portfolio review and risk assessment for you. Okay, now what do we have for dinner tonight? Well, this one's really great. It's kind of hot and angry the way the markets have been. It's Calabrian shrimp scampi, and this is not your grandmother's scampi. This is what happens when the southern Italians get involved, because Calabria is all the way down by the toe of the boot. For this, you need 2 pounds of large, clean, and deveined shrimp. You need olive oil, lots of garlic cloves sliced really thin. You need Calabrian chili paste, and that's the key. You need crushed red pepper, dry white wine— you know me, Pinot Grigio, Santa Margherita is always perfect. You need a cup of sliced cherry tomatoes. You need butter, fresh lemon juice, basil, parsley, and salt and pepper. And then after it's cooked You need fresh burrata and thick slices of grilled Italian bread. Okay, so you want to start by seasoning the shrimp with salt and pepper, set them aside. Uh, heat the olive oil in a cast iron skillet if you have one. Add the garlic, but you don't let it brown, right? Stir in the Calabrian chili paste and the red pepper flakes. Now you're going to add the shrimp and you're going to cook it till it's pink. Then you're going to flip it and you're going to repeat it until it's pink again. It only takes about 60 to 90 seconds. Now pour in the white wine and scrape the bottom, uh, every bit of flavor off the bottom that gets stuck to the pan, right? Now you're going to add in the sliced tomatoes, let them soften for about 3 minutes, finish it off with 2 tablespoons of butter and then a squirt of fresh lemon juice. Now turn the heat off, place the burrata right in the center of the pan, and it's going to soften and get all melty. You're going to add the chopped basil and parsley on the top to decorate, then you're going to serve it immediately. With thick slices of grilled Italian bread. Oh my God, it is delicious. Look, until tomorrow, take good care.
