Sound the alarms, because something looks broken.
Technology, energy and the US dollar all strengthened together on Wednesday. That combination looks awkward at first glance because each trade normally responds to a different part of the macro picture.
But the move starts to make more sense when it is split into three separate stories. Tech is trading softer inflation and strong AI earnings, energy is still carrying the effects of a disrupted oil market, while the dollar is being supported by relative US resilience and geopolitical risk.
CPI took some pressure off the Fed
July CPI did not deliver a downside surprise, but it also failed to deliver the upside inflation shock that markets had feared.
Headline CPI rose 0.1% month on month and 3.4% year on year, while core CPI increased 0.2% on the month and 2.5% from a year earlier. Both annual rates eased from June.
That was enough for traders to pull back from the idea of another immediate Fed hike. CME FedWatch pricing after the release put the probability of a September hike at about 36%, leaving a hold as the base case.
For technology, that matters because lower expected short-term rates reduce some of the pressure on long-duration growth assets. It does not automatically make tech cheap, but it removes one of the more obvious macro headwinds.
Tech had another catalyst beyond CPI
The rate story was only part of the move.
AI infrastructure stocks also received fresh support from earnings and spending signals.
Several AI-linked names rallied sharply after results, while semiconductors strengthened more broadly. That suggests the market was not simply reacting to lower rate expectations. It was also rebuilding confidence that AI infrastructure spending is still translating into revenue growth.
SpaceX adds another example of how aggressively high-beta growth has been bought after recent fear. The stock has rebounded roughly 40% from its post-unlock lows after the August share unlock initially raised concerns about a much larger increase in available supply.
That does not remove the bear case. Michael Burry’s bearish positioning in AI-linked names such as Nebius remains a useful counterpoint, particularly if valuations continue to expand faster than cash generation.
Energy is running on a different engine
Energy is not rising for the same reason as technology.
The Iran conflict and disrupted flows through the Strait of Hormuz have kept a risk premium embedded across the energy complex. At the same time, refiners have benefited from unusually strong product margins, which helps explain why energy equities can remain firm even when crude itself pauses or falls.
When product prices rise faster than crude, refiners can become more profitable even if the headline oil price is no longer surging. That helps explain why XLE can keep pushing higher without requiring another immediate spike in WTI.
On top of that, the Iran-Oman shipping agreement that had been expected to move towards completion by last Friday has still not been finalised.
Iran said on August 9 that the deal was in its “final stages”, but reopening Hormuz remained conditional on broader US concessions, including sanctions relief, compensation and changes in Washington’s regional posture.
More importantly, physical traffic has not returned to normal. The Strait of Hormuz Monitor showing just 8 of 68 vessels in transit suggests the diplomatic headlines have yet to translate into a genuine restoration of flows.
The risks around the negotiations are also widening. Houthi attacks on commercial shipping have kept maritime security concerns alive, while Iran continues to seek broader concessions around sanctions, security and its nuclear programme.
That leaves open the possibility that even a deal does not restore the old status quo. Iran has also sought a 5%-7% transit fee on oil cargoes, while Oman has floated a lower 3% framework.
If some form of toll or controlled-access regime survives a settlement, the effective cost of moving oil through Hormuz could remain structurally higher even after the immediate blockade risk fades.
The charts are not equally extended
The technical picture also argues against treating XLE and XLK as the same trade.
XLE’s 4 hour Stoch RSI is close to 100, which makes the short-term move stretched. Its daily Stoch RSI is closer to the middle of the range, however, leaving more room for higher-timeframe momentum to build if price clears the descending trendline and the 61 to 62 resistance area.
XLK is different. Its four-hour momentum has cooled, but the daily Stoch RSI is already close to the upper end of its range. That makes the technology breakout more mature on the daily timeframe even if the immediate four-hour setup still has room.
In other words, technology has the stronger recent earnings catalyst, while energy currently has the cleaner higher-timeframe momentum profile.
So why is the Dollar rising too?
This is the part that makes the move look contradictory.
If inflation is cooling and the Fed is less likely to hike, the first reaction would normally be lower US yields and a softer dollar. DXY initially moved that way after CPI, but it has since recovered and pushed back towards the 100 area.
The dollar is responding to a different comparison. The US is less exposed to imported energy than economies such as Europe and Japan, while continued geopolitical uncertainty can still create demand for dollar liquidity and US assets.
Technically, DXY has also broken out of a falling-wedge-like consolidation near support. Four-hour momentum is already stretched, but the daily Stoch RSI remains deeply reset, which leaves room for a larger recovery if resistance gives way.
The important test sits around 100.3 to 100.5, where the four-hour 200-EMA band has repeatedly acted as a pivot. A rejection there would keep the broader dollar recovery incomplete.
A clean break would make the rebound harder to dismiss as a short-term squeeze.
This looks more like a barbell than a rotation
The key point is that money does not appear to be leaving one obvious sector and moving neatly into another.
Instead, investors are holding two different equity exposures at once. Technology benefits from easier rate expectations and renewed AI earnings confidence, while energy provides exposure to a still-unstable inflation and geopolitical backdrop.
The dollar then sits beside both as a relative-resilience trade.
That creates an unusual barbell: growth on one side, energy and geopolitical protection on the other.
It can persist for a while, but the three legs will not necessarily remain compatible – meaning one of them will break – if views on inflation or a hawkish Fed starts heating up again.
PPI is the next test
July producer inflation is due at 8:30 a.m. ET on 13 August, making PPI the next immediate test of this setup.
A softer print would reinforce the idea that inflation pressure is cooling and should be most supportive for technology. It could also make it harder for DXY to break decisively through the 100.3 to 100.5 resistance area.
A hotter print would do the opposite. It could revive Fed-hike expectations, strengthen the dollar breakout and put more pressure on stretched technology valuations, while energy may retain relative support if the inflation impulse is being driven by products and supply disruption.
For now, the market is not necessarily broken. It is pricing three different risks at the same time. PPI will help show which one starts to dominate.
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