The S&P 500This week, the market focus has shifted from just “AI is strong, macro is tight.” Now, the main question is whether risk assets can find new liquidity as the Fed keeps rates high and institutional crypto flows stay weak. Bitcoin held the $58,000 level and bounced into July 2, but this move seems more like a relief rally than a clear trend reversal. Meanwhile, leadership in equities split: the Dow and banks stayed strong heading into earnings season, while semiconductors and the Nasdaq showed some signs of AI fatigue.
Opening bullets
- Bitcoin is at its most important technical level this year. BTC briefly dropped to 57,717.55 on July 1, then climbed to 61,790.44 by July 2. This keeps the $58,000 support area intact, but it is still below the $64,000 mark that would signal a clearer reversal.
- ETF flows are now the main institutional signal for crypto. U.S. spot Bitcoin ETFs saw roughly $4.1B–$4.5B in net June outflows, depending on the dataset, marking their worst monthly showing since launch. This means BTC needs steady ETF inflows before the market can see this bounce as lasting (Yahoo Finance).
- The Fed remains the key medium-term anchor for risk assets. In June, the FOMC kept rates at 3.50%-3.75%, and projections showed a 2026 median federal funds rate of 3.8%. This keeps the market watching to see if the next move is a hold or a hike (Federal Reserve statement, Federal Reserve projections).
- Equities are heading into earnings season with mixed performance. U.S. equities ended July 2 mixed. The S&P 500 closed at 7,483.24 on July 2, the Dow rose 1.1% to a record 52,900.07, and the Nasdaq Composite fell 0.8% as AI and semiconductor names remained under pressure. This shows a shift away from long-term growth stocks toward more stable cyclical and value stocks.
- AI remains the market’s top growth theme, but investors now want to see real monetization. Reports that Meta is exploring a cloud business to sell access to AI models and potentially raw compute helped investors frame AI capex as a possible future revenue source, though Reuters noted it could not independently verify Bloomberg’s report. Meanwhile, weakness in TSM and ASML shows the market is not rewarding all AI supply-chain companies equally (U.S. News / Reuters).
- The next two big events are June inflation data, which comes out in July, and July earnings reports. If inflation is lower, it could weaken the case for Fed rate hikes. Strong earnings from banks, TSMC, and large tech companies will need to show that higher rates are not hurting credit, AI spending, or consumer demand.
Market snapshot: risk appetite improved, but leadership narrowed
BTC’s price action showed the market was testing a liquidity floor, not panicking. BTC rose 3.10% from June 28 to July 2, and ETH did even better with an 8.06% gain. This bounce is important because BTC stayed above $58,000, but it does not undo the damage from June’s ETF outflows and tighter macro conditions.
Traditional markets were calmer, but the mix of leaders was notable. The S&P 500 gained 0.80% from June 29 to July 2, the Dow rose 1.24%, and the Nasdaq 100 fell 0.41%. This pattern suggests investors are not leaving equities but are being more selective about pricey growth and AI-related stocks.
The overall market picture was mixed, not overly positive. The VIX was at 16.76 on July 2, showing low volatility. The 10-year Treasury yield rose to 4.49%, up 12 basis points from June 29 to July 2. The Dollar Index dropped to 100.67, down 0.49% from June 28, which eased some pressure on risk assets but did not remove concerns about higher rates.
Commodities gave a somewhat positive signal for inflation. WTI crude was at 68.48 on July 2 after falling 2.12% from June 28 to July 2, while gold rose 1.03%. Lower oil prices support the idea that energy is not causing broad inflation, but the Treasury yield move shows the market still lacks enough evidence for a more relaxed Fed policy.
Crypto: ETF flows are the near-term steering wheel
Bitcoin’s main issue is clear: the price is trying to stabilize, but institutional flows have not shown that the selloff is over. U.S. spot Bitcoin ETFs were expected to see over $4.1 billion in June withdrawals, with BlackRock’s IBIT making up $3 billion of that, according to Bloomberg data cited by Yahoo Finance (Yahoo Finance). Cointelegraph reported that U.S. spot Bitcoin ETFs had $696.3 million in daily net outflows on June 25, bringing June outflows to $3.61 billion and year-to-date outflows to $4.6 billion at that point (Cointelegraph).
The pattern of outflows is more important than any single day because it changes who is buying in the market. U.S. spot Bitcoin ETFs had 13 straight sessions of outflows from May 15 to June 3, losing about $4.4 billion before seeing just $3.05 million in net inflows on June 4 (CoinPaprika). This means the market is not just facing lower prices, but also the loss of its most visible institutional demand channel.
This is why the $58,000 to $64,000 range is so important. If BTC stays above $58,000 and ETF flows turn positive for several days in a row, traders may see the recent move as accumulation, not just short covering. If BTC falls below that support and ETF outflows continue, the market will likely see it as proof that institutional demand has not come back.
Market sentiment is already fragile. The Crypto Fear and Greed Index was at 18 on June 28, which is considered “extreme fear” (AI Coin). This makes BTC more sensitive to changes in flows: a streak of inflows could spark a quick relief rally, but another big ETF outflow could put the $58,000 level at risk again.
Macro: Warsh’s Fed still controls the medium-term trend
The Fed remains the most important medium-term pricing anchor for crypto, gold, and high-growth tech. The June 17 FOMC statement held the federal funds target range at 3.50%-3.75% in a 12-0 vote and said inflation remains elevated relative to the 2% goal, partly because of supply shocks in sectors including energy (Federal Reserve statement). The June projections showed a 2026 median federal funds rate of 3.8%, median PCE inflation of 3.6%, and median core PCE inflation of 3.3%, keeping the committee’s projected policy path above the current rate range (Federal Reserve projections).
This creates a tough situation for BTC. If rates were lower, ETF inflows and regulatory progress might be enough to push prices higher. But in the current environment, the market needs both a return of institutional flows and a softer macro outlook, since high real-rate expectations make long-term risk assets less attractive.
The next key Fed event is the July 28-29 FOMC meeting (Federal Reserve calendar). Before then, the market will watch to see if lower oil prices appear in June inflation data. If inflation cools in June and July, the market may see the earlier inflation scare as energy-related. If core inflation stays high, the Fed may keep its hawkish stance.
DATCOs and regulation: structural buying needs a confidence catalyst
The story of Bitcoin treasury companies still matters, but the market is less confident that their buying can make up for weak ETF demand. The main question now is whether this buying still matters if equity financing gets more expensive and BTC trades below recent accumulation levels. In a high-rate, risk-off environment, DATCO demand can help set a floor, but it could also hurt sentiment if investors worry about financing pressure or forced selling.
Regulation remains the cleaner long-term institutional catalyst, but the timeline is still uncertain. Senator Cynthia Lummis said on June 24 that the Digital Asset Market CLARITY Act would reach the Senate floor for debate in July, while CoinPaprika reported that the bill was placed on the Senate Legislative Calendar on June 1 and that the Senate Banking Committee advanced it by a 15-9 vote on May 14 (CoinPaprika). The same report noted that the bill still needs 60 votes to clear the Senate's cloture threshold and that the Senate returns from its July 4 break on July 13, with the August recess beginning around August 10 (CoinPaprika).
This means the CLARITY Act is a timing catalyst, not a finished one. If the Senate debate moves forward before the August recess, crypto could get a confidence boost because regulatory clarity makes it easier for traditional institutions to get involved. If the timeline is delayed until fall, BTC may stay more dependent on ETF flows and macro data than on hopes for regulation.
Equities: earnings season becomes the next AI and growth test
The equity market is heading into July earnings season with two stories at once. Banks and value stocks are behaving as if the economy is still strong, while semiconductors are showing that AI expectations are harder to meet. JPM rose 1.12% from June 29 to July 2, reflecting the shift toward financials before the mid-July bank earnings reports.
Bank earnings are important because they will give the first clear look at credit, net interest income, consumer stress, and corporate activity under a higher-for-longer Fed. If JPMorgan and others show strong credit trends and stable deposit costs, it suggests the economy is handling higher rates. If provisions increase or management sounds cautious, the macro-growth story could weaken, especially as the Fed is less likely to offer guidance.
The AI supply chain faces a different challenge: expectations are very high. TSM was at 433.22 on July 2 after dropping 9.29% since June 30, while ASML fell 6.30% and AMD dropped 5.47% from June 29 to July 2. This does not mean the AI cycle is ending, but it shows investors are taking profits in stocks where prices already expect strong results later in the year.
This makes TSMC’s mid-July report one of the key supply-chain tests this quarter. The market will watch to see if management confirms strong AI and HPC demand, if advanced-node use stays high, and if capex guidance supports ongoing AI infrastructure spending. A report that beats expectations but sounds cautious may not be enough if investors already think the AI trade is crowded.
Meta Compute: AI capex needs a revenue story
Meta was the clearest example this week of what investors want from AI: a clear path from spending to making money. Bloomberg reported that Meta is building a cloud business to sell extra AI computing power, including access to AI models on Meta’s infrastructure and possibly raw AI compute, according to a Reuters story published by U.S. News (U.S. News / Reuters). The plan is still in development and could change, but it is seen as a way for Meta to meet enterprise demand for AI services and rely less on advertising (U.S. News / Reuters).
The stock’s reaction showed why this story matters. Meta rose 8.81% from June 30 to July 1 after the report, and was at 586.32 on July 2. This suggests the market is ready to reward AI spending when there is a believable plan for the infrastructure to make money, not just use up capital.
This is also why late-July earnings from big tech companies will be important. Investors will not just look at whether Microsoft, Amazon, Alphabet, Meta, and Apple are spending on AI. They will want to see if that spending is leading to cloud growth, better ad efficiency, new revenue from models, productivity gains, or a stronger platform advantage.
What to watch next
- BTC $58,000 support and $64,000 resistance: A hold above support keeps the recovery path open, but a reclaim of $64,000 would be the cleaner signal that trend-following capital is returning.
- Spot Bitcoin ETF flows: The most important reversal signal would be several consecutive sessions of meaningful net inflows, not just a single positive day after a long outflow streak.
- July 28-29 FOMC meeting: The market will watch whether the Fed keeps the hawkish option alive or softens its tone if oil-driven inflation pressure fades (Federal Reserve calendar).
- June inflation data: A cooler print would support the view that the recent inflation scare was an energy shock; another firm core reading would keep pressure on crypto, gold, and high-growth tech.
- CLARITY Act timing: A Senate debate before the August recess would support institutional crypto confidence, while a delay would keep regulation in the “future catalyst” bucket (CoinPaprika).
- Bank earnings: JPMorgan and the mid-July bank cluster will set the tone for credit quality, deposit costs, and whether higher rates are beginning to bite.
- TSMC and ASML: Their reports will be the first major test of whether the AI supply-chain pullback is just profit-taking or the start of broader valuation compression.
- Meta and megacap AI monetization: The market wants evidence that AI capex can become revenue, not just another cost center.
Bottom line
This week’s market looks better on the surface than it feels underneath. BTC bounced, ETH did even better, oil prices fell, the dollar eased, and the VIX stayed low. But the real story is still about liquidity: ETF outflows have weakened crypto’s institutional support, the Fed has not signaled any easing for risk assets, and semiconductors show that just having AI exposure is no longer enough.
For traders, the next phase depends on whether liquidity drivers start to align. A positive scenario would include ETF flows turning positive, June inflation cooling, the CLARITY Act moving forward before the August recess, and July earnings showing that AI spending is still leading to revenue growth. A weaker scenario would be the opposite: BTC drops below $58,000, ETF outflows continue, core inflation stays high, and AI earnings guidance does not support high valuations.
The simplest way to look at it is that crypto is trying to find a bottom while equities are moving into an earnings test. Bitcoin needs ETF flows to show that institutional capital is returning. Equities need earnings to prove that higher rates are not hurting growth yet. Until one of these signals is clearer, the market stays tradable but fragile.
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