The Nasdaq composite and artificial intelligence chip stocks staged a snapback rally Thursday following the market’s battering by renewed U.S.-Iran hostilities and the aftermath of the Federal Reserve’s decision to leave interest rates steady. We think the AI trade has sold off enough at this point, with a lot of AI stocks giving back 50% or more of their gains. The much-discussed leverage has finally pulled back, and we believe volatility is going to be here for a couple more weeks, probably into mid-August. Will the AI stocks shoot back up to their all-time highs? We think the odds are slim, but if they do, they will most likely start to work their way back up at a more measured pace, with a more normal trading pattern. The market has broadened out, and we expect the index to move higher, especially in Q4. Our target for the S&P 500 is still to get close to, if not exceed, 8,000.

Three stocks to watch:

Amgen (AMGN) – look for a break above $401.00

V2X (VVX) – look for a break above $91.00

Murphy USA (MUSA) – look for a break above $630.00

U.S. real growth surprised to the downside, but the underlying demand is strong. Real GDP increased at a 1.5% annualized rate in Q2, below the consensus and the prior quarter’s 2.1% growth rate. Stronger consumer spending and continued capex growth were positive drivers, while net exports, inventories, and the government sector were drags.

Final sales to domestic purchasers, which excludes net exports and inventories, rose at a 3.1% annualized rate, the most since Q3 2024, and above the long-run average of 2.8%, indicating strong domestic demand. Final sales to private domestic purchasers, which also excludes the government sector, rose at an even stronger 3.9% annualized rate, the most in over three years. Such buoyant domestic demand is keeping inflation pressures elevated.