Why the U.S. Economy Slowed in the Second Quarter

Summary of Why the U.S. Economy Slowed in the Second Quarter

by The Wall Street Journal

12m•July 30, 2026
Listen to Episode

Overview of Why the U.S. Economy Slowed in the Second Quarter

The episode covers a mixed U.S. economic picture: GDP growth slowed in Q2, but underlying private demand remained strong. It also highlights a broad market rebound after a rough session, major earnings from Apple and Amazon, a sharp setback for an AI-focused hedge fund, and several business and geopolitical developments ranging from FIFA politics to a widening Middle East conflict.

U.S. Economy: Slower GDP, Stronger Underlying Demand

The Commerce Department said U.S. GDP grew at a 1.5% annualized rate in Q2, slower than expected and down from the previous quarter.

Why GDP looked weak

  • A major drag came from imports tied to the AI boom, especially semiconductors and other components brought in from overseas.
  • Imports subtract from GDP calculations, so AI-related investment can make the headline number look softer even when economic activity is strong.

What was strong beneath the surface

  • A closely watched measure of final sales to private domestic purchasers rose 3.9%, signaling healthy consumer spending and business investment.
  • Consumers appeared to absorb higher gas prices without a major pullback in spending.

Inflation and Fed implications

  • The Fed’s preferred inflation gauge, PCE, fell 0.1% in June, but remained elevated at 3.7%, still well above the Fed’s 2% target.
  • The report suggests inflation may be cooling somewhat, but still persistent enough to keep policymakers cautious.

Market Reaction: Stocks Bounce Back, Yields Stay High

Markets recovered sharply after the prior day’s selloff.

  • Nasdaq rose nearly 3%
  • S&P 500 and Dow both gained more than 1%
  • Microsoft had its best day in nearly two decades, closing up 16%
  • Chip stocks helped drive the rally

At the same time:

  • Treasury yields remained at multi-year highs
  • Higher yields are pushing up borrowing costs, especially for mortgages
  • The average 30-year mortgage rate climbed to 6.66%, the highest in a year

Major Earnings: Apple and Amazon

Apple

  • Reported record June-quarter sales of more than $109 billion
  • Strong iPhone demand and unexpectedly strong Mac sales helped performance
  • Shares fell about 2% after hours

Amazon

  • AWS revenue grew about 37%, its fastest pace since 2022
  • Overall sales and net income beat analyst expectations
  • Shares rose about 9% after hours

Amazon’s Robo-Taxi Approval

Federal regulators cleared Amazon’s autonomous vehicle unit, Zoox, to begin charging customers for rides.

  • Zoox has been offering free rides in Las Vegas and San Francisco
  • The vehicles are unusual, lacking traditional controls like a steering wheel or brake pedal
  • Regulators allowed deployment of up to 2,500 AVs per year for the next two years
  • The approval is still described as temporary

IPO Watch: Reformation and Jersey Mike’s

Reformation

  • The clothing brand debuted in public markets with an IPO valuation of about $886 million
  • Shares closed up slightly on day one

Jersey Mike’s

  • Raised about $1 billion in one of the largest U.S. restaurant IPOs in years
  • Backed by Blackstone, which sped up the path to public markets after operational cleanup
  • Changes included:
    • Menu expansion, including a hot Italian sub
    • Revival of chicken salad subs
    • Cost cuts such as eliminating a $41 million private jet
    • Reduction of bonuses and removal of founder-family members from payroll
  • The company wants to expand from about 3,000 locations to as many as 15,000 globally
  • Shares closed down 6%

Hedge Fund Trouble: Situational Awareness

A major story centered on Situational Awareness, the AI-focused hedge fund led by Leopold Aschenbrenner.

What happened

  • The firm reportedly sold most of its stock portfolio to Citadel
  • It had suffered steep losses and was looking for buyers and fresh capital
  • The move suggests pressure from margin calls and leverage-related stress

Why it matters

  • The fund became famous for betting heavily on AI, chips, and related leverage trades
  • Its rapid rise — to more than $20 billion in assets under management — made Aschenbrenner something of an AI-era Wall Street oracle
  • The episode frames the selloff as a warning about the risks of crowded AI trades and leverage when markets turn

Global and Political Developments

Egypt and the Iran conflict

  • Egypt said a drone attack caused an explosion at a port
  • It was the first time Egypt had been targeted during the Iran-related war, suggesting the conflict is spreading regionally

FIFA and UEFA dispute

  • FIFA wants to spin off commercial rights for major competitions into a private company
  • It plans to sell a 20% stake in that venture, reportedly valued at $20 billion
  • European soccer leadership, UEFA, warned it may boycott competitions, including the World Cup, if FIFA proceeds
  • Countries have until September 19 to back the plan or risk losing payments

Consumer and Restaurant News

Taco Bell / Yum! Brands

  • Taco Bell’s sales were hurt by an outbreak of cyclospora linked to lettuce
  • Yum! said same-store sales fell 2% from mid-June through July 27
  • The company believes the impact will be temporary and is trying to win customers back with promotions like:
    • $1 Mexican pizzas
    • Limited-time items such as butter chicken tacos
  • Yum! shares closed up more than 3%

Main Takeaways

  • The U.S. economy slowed on the surface, but private domestic demand remained solid
  • The AI boom is boosting investment, while also complicating GDP through import-heavy supply chains
  • Markets are balancing strong tech earnings against concerns about inflation and high borrowing costs
  • The AI trade is still powerful, but the hedge fund losses show it can be fragile and highly leveraged
  • Big corporate stories continue to center on AI, autonomous vehicles, IPOs, and consumer brands trying to protect demand