Good morning, investors. I’ve been on the record all year with the contrarian call for rate cuts being more likely than rate hikes, and the odds suddenly flipped Tuesday after the cooler-than-expected inflation report.

The macro data, however, was overshadowed once again by AI.

IBM just had its worst trading day in its 115-year history.

The stock fell 25% after executives warned that second-quarter earnings results would miss expectations, a call that gave shareholders an even worse session than the 1987 Black Monday sell-off.

The company expects revenue of $17.2 billion in the period, below Wall Street forecasts for $17.9 billion.

Meanwhile, preliminary earnings per share of $2.93 fell short of estimates for $3.01.

CEO Arvind Krishna said clients abruptly rewrote their budgets in the final week of June, and other firms scrambled to lock in servers and memory chips before AI-driven price increases kicked in.

That extra capital and budgeting, he said, rotated out of software.

"This dynamic impacted client buying patterns,” Krishna said. “While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization.”

In addition to IBM’s sell-off, the market reflected the theme on both sides of the trade:

What’s notable about the names in red, including IBM, is that they do not raise concerns about AI demand. They actually do the opposite of that.

Demand for AI infrastructure is apparently intense enough to cannibalize the software line in the enterprise tech budget.

If this doesn’t snap back in the coming weeks, it would suggest that AI spending should easily dismissed as something to add onto existing spending.

IBM is signaling that a fixed pool of enterprise dollars — and so stock market sentiment — is in fact rotating from old to new.

Companies selling memory and hard-to-replicate hardware items get to maintain pricing power, a growing customer list and lofty stock prices, while those building everything else have to compete for whatever budget remains.

IBM reports its full earnings results on July 22.

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📊 June inflation cooled at the fastest pace since COVID. Headline CPI fell 0.4% against a 0.1% expected decline, with gasoline prices tumbling 9.7% month-over-month. (CBS News)

🏦 JPMorgan crushed second-quarter earnings. Headline EPS hit $7.70 on revenue of $57.35 billion, and Jamie Dimon flagged investment banking fees up 30% to their highest level since 2021. (Investing.com)

🛢 Oil ticked lower after Trump dropped his 20% Strait of Hormuz toll demand. Brent had spiked 9.6% to $83.30 on the initial blockade announcement before the president replaced the fee with "Trade and Investment Deals" on Tuesday. (CNBC)

🍻Want more financial news, but after the closing bell? Thousands of readers trust Brew Markets for their end-of-day analysis. I’ll handle your morning dispatch, and you can wrap up your afternoons with Brew Markets from Morning Brew — sign up free.

Jessica Inskip is market strategist and the director of research at StockBrokers.com.

She joined me on Full Signal to discuss her highest-conviction investment ideas, the AI capex boom, how today's market compares to dot-com, and what she's putting in a brand new portfolio with the current setup.

Tune in on Spotify, Apple Podcasts or YouTube.

🗓 July 15, 2008: The SEC issued an emergency order banning naked short-selling in the shares of 19 major financial firms, including Fannie Mae, Freddie Mac and every major Wall Street bank.

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