The S&P 500 had its best quarter in six years, but June's selloff in megacap tech tested the rally. July earnings and the Fed decision will decide the next leg.
The S&P 500 just wrapped its best quarter since late 2021. June told a different story. The index drifted lower through the final weeks, dragged down by the same megacap tech stocks that powered the earlier run. The rotation out of the Magnificent Seven and into financials and energy puts the durability of the AI-led advance under the microscope.
The move accelerated after the Fed's June meeting. Officials projected only one rate cut this year. Higher long-term rates compress the valuation premium that growth stocks command. Nvidia and Microsoft each fell at least 4% from their June peaks, traders said, as hedge funds trimmed concentrated longs that had built up through the first half.
The AI boom is still the defining theme of 2025. The execution risk is front-loaded into July earnings season. Companies directly tied to AI infrastructure have seen the steepest multiple expansion. Any miss from a key bellwether could trigger a broader unwind. That outcome remains conditional. The first batch of Q2 reports lands in mid-July, with financials due before the tech heavyweights.
The calendar offers two clear risk events. The CPI print on July 11 and the Fed's July 30 decision set the stage for rate expectations. The quarterly options expiry on July 19 adds a second layer of volatility potential, though the effect is typically short-lived.
The S&P 500 held above 5,450 into the close of the half. That level has supported the index five times since May, several technical strategists said. A break below that would open the path to the 100-day moving average near 5,300. The shallow liquidity of the last few trading days of June made the pullback look sharper than it was, according to a desk at a major U.S. bank.
The SPDR S&P 500 ETF (SPY) ended the half at $545. The broadening of the rally is the main story for the second half. Financials and energy have absorbed the outflows from technology so far. The first major earnings report is due July 11 from the financial sector. For broader stock market analysis on sector rotation, see our ongoing coverage.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.