WSJ What’s News - Why the U.S. Economy Slowed in the Second Quarter

Episode Date: July 30, 2026

P.M. Edition for July 30. The U.S. economy grew just 1.5% last quarter, lower than the previous quarter and falling short of economists’ expectations. WSJ economics reporter Harriet Torry explains why the details in the report, particularly around consumer spending, suggest things aren’t as bad as the headline number makes it seem. Plus, the buzzy AI-focused hedge fund Situational Awareness, founded by AI whiz kid Leopold Aschenbrenner, sold most of its stock portfolio to investment firm Citadel. We hear from WSJ special writer Greg Zuckerman about why this happened and where the company goes from here. And a big rally in tech companies sent U.S. stocks soaring today. Alex Ossola hosts. See the new fronts in the Iran war.  Sign up for the WSJ's free What's News newsletter. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

U.S. economic growth slowed in the second quarter, but there were some positive signs in the details of the report. We'll dig in. Plus, the Buzzy Hedge Fund situational awareness sold off most of its stock portfolio after big losses on AI. Leo Aschen Brenner flew a little high in the sky close to the sun, and it kind of burns him a little bit. And markets rally after yesterday's punishing session, with Microsoft adding its biggest percentage gain in overall. almost two decades. It's Thursday, July 30th. I'm Alex O'Sullough for the Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today. U.S. economic growth slowed in the second quarter. The Commerce Department said today that

U.S. GDP, that is the value of all goods and services produced here, rose at an annual 1.5% rate. That's slower than economists had expected and slower than the previous quarter. WSJ economics reporter Harriet Tori is here to discuss. Harriet, one of the things that dragged on GDP for the last quarter was actually something that's propelled stock markets, the AI boom. Could you explain what's going on there? We've seen very, very strong investment in artificial intelligence. That, of course, is generally a positive thing for the economy. You know, the fact that these data centers are being built, that's all generating economic activity.

But the other side of the coin is that many of these components, that are used in artificial intelligence, things like semiconductors, are imported from overseas. So imports are technically counted as a subtraction when you do the calculation of GDP. So that ends up, you know, making the headline GDP number look a little soft. But when you look a bit under the hood, there's a measure called final sales to private domestic purchases, which is just a measure of consumer spending and business investment. And that rose at a 3.9% rate in the second quarter, which is very strong. And those are definitely good signs for future growth.

Yeah, I wanted to ask you about consumer spending. What was driving that? I mean, is it just because gas prices rose? We did have this gas price shock that continued in the second quarter. That is definitely not great for households. But at the same time, they seem to largely shrug it off. And we saw that consumer spending was really very strong. Also out today are the latest numbers for the Fed's preferred measure of inflation that's known as the Personal Consumption Expenditures Price Index. It fell by 0.1% last month. But it's still pretty high at 3.5%. certainly above the 2% of the Fed's target rate. Yesterday, of course, the Fed held rate steady, but what are these latest numbers suggest officials might do at the next meeting in September? We did see a slight cooling off of inflation in June, according to PCE, but at the same time, demand appears to be strong in the economy, and that is potentially a sign that inflation could continue to kind of spread out, that it might not be limited to just this oil price shot related

to the conflict in Iran. That was WSJ reporter, Harriet Tori. Thank you, Harriet. Thanks. There was a huge run-up in stocks today after their big tumble yesterday. The NASDAQ closed up almost 3% higher with a rally in chip stocks and Microsoft's best market day since 2008 after yesterday's earnings. It closed up 16%.

The Dow and the S&P also climbed and both finished up more than 1%. Meanwhile, Treasury yields are at multi-year highs because of worries about rising inflation. That pushes up borrowing costs, which affects all. all kinds of economic activity, but in particular, the housing market. Mortgage rates this week jumped to their highest level in a year, averaging 6.66% for a 30-year loan. Mortgage rates are closely tied to the 10-year treasury. But back to stocks, today two companies went public that you might be familiar with. One is Reformation, the cool girl clothing brand. Not saying I'm cool, but I have bought a few dresses there. Anyway, its IPO valued the company at about $886 million,

and its shares closed up half a percent on its first day of trading. And the other is the Jersey Mikes sandwich chain. Its executives rang the bell at the New York Stock Exchange this morning, alongside its spokesman, the actor and Jersey native, Danny DeVito. It raised about $1 billion in one of the largest U.S. restaurant IPOs in years. Mark Mauer covers private equity for the journal. He says Blackstone put Jersey Mikes on the fast track to going public after just 18 months because they felt the company was already in good shape.

The biggest changes that Blackstone helped make with Jersey Mike's executives were making changes to the menu, like offering the chain's first hot Italian sub and that they revived a promotion for chicken salad subs. And these were moves to help widen the customer base. And then on the finance side, Blackstone removed expenses. They carved out like a $41 million private jet. And they also really cut down on these bonuses. There are also many family members of the founder, Peter Cancrow, on the payroll. And so now those family members have since left the payroll leading up to the IPO.

Jersey Mikes also has some pretty ambitious plans for the future. The company wants to bring its hot Italian subs and chicken salad sandwiches around the world. It has about 3,000 locations today and wants to expand to as many as 15,000 globally. That's a lot of sandwiches. It stock closed down 6% today. Coming up, we've got the latest earnings from Amazon and Apple, and regulators give the green light for Amazon to start charging rides in its toaster on wheels. Those stories after the break.

Egypt says that a drone attack caused an explosion at a port yesterday. It's the first time Egypt's been targeted during the Iran War, and it's a sign of how the war is widening across the region. We'll leave a link to a story showing that in graphics in our show notes. Well, the World Cup may be over, but for FIFA, the drama is currently underway. To step back earlier this week, FIFA said it was going to spin off the commercial rights of its most popular competitions into a private company. And FIFA, which is a non-profit, wants to sell off a roughly 20% stake in that private company to investors. They're valuing the venture at $20 billion.

Today, after an emergency meeting, soccer leadership for 55 European countries, that's UEFA, said that if FIFA goes down, this path, they'll boycott all the competitions. That includes the World Cup, and it includes Spain, who just won the World Cup. Countries now have until September 19th to pledge their support for the commercial enterprise, or they risk missing out on millions of dollars in payments from FIFA. Situational awareness, prominent hedge fund focused on AI, has run into trouble. The journal has learned that the firm has sold the bulk of its stock portfolio to Ken Griffin's investment firm, Citadel. We're reporting that situational awareness had seen. suffer deep losses. And in recent days, it had been looking for buyers for its holdings and trying

to raise new capital. It's a sudden downfall for the firm, whose leader, Leopold Aschenbrenner, is a 20-something former Open AI employee who's captivated Wall Street. He was even seen by some people as an AI Oracle. And under him, the firm amassed $20 billion in assets under management. WSJ Special Writer Greg Zuckerman has been looking into this. Greg, what happened to situational here? Leo Aschenbrenner flew a little high in the sky close to the sun and it kind of burns him a little bit. His firm in two years grown to 20 plus a billion. A lot of it was on AI and chips and related bets and stocks and leverage. Borrowing money grows the firm and you do well when you borrow when the stocks go up,

but it cripples you when they go down. So this situation at situational awareness underscores the precarious period we're in. People have been throwing money at AI companies on the bet that there'll be a payoff. And now we're having concern. Meta shares tumbling today. People are worrying about will there be a payoff? When will there be a payoff?

What does this mean for situational's founder, Leopold Aschenbrenner, this young guy who has a sort of cult following on Wall Street? Well, just like in the world of social media, You have influencers who emerge out of nowhere and have influence. Same thing happens sometimes on Wall Street. So Leo is very well connected. He knows about or professors to know a lot about AI, older people. They're trying to figure out this new world.

So sometimes we defer to the younger generation. And that's what a lot of people have done here. Some big firms got behind him. There's a firm called Jane Street, which is as well respected, a trading firm as any on Wall Street. And he's emerged as one of these young oracles of the new generation. And what about now? What kind of pressure is situational awareness under?

Well, as firms under a lot of pressure, we're reporting today that they've sold the bulk of their stock portfolio to a rival hedge fund, Citadel, Ken Griffin's firm. That's a way to free up cash. They needed money. They were getting margin calls, we believe, and that means their broker was putting pressure on them. He still has significant holdings, especially private investments in things like Anthropics. So the firm is not going under, but they're under a lot of stress right now. It raises concerns among investors, but portfolio managers are able to often portray these kind of setbacks as learning experiences. And Wall Street is full of second and third chances.

So for all we know, he could be bigger and better six months one year from now. That was WSJ's special writer, Greg Zuckerman. Thanks, Greg. Of course. In earnings, Apple reported record June quarter sales of more than $109 billion. There was strong demand for last year's iPhone lineup and surprising strength for Mac computers, which have been popular for AI users. Shares fell about 2% after hours. And Amazon reported that sales in its Amazon Web Services or AWS division grew about 37%,

the fastest rate since 2022. That's a major profit drive. and revenue and net income for the overall company both beat analyst expectations. Its stock was up about 9% in after-hours trading. Separately, federal regulators have cleared Amazon's Robotaxy Service to start charging customers for rides. Zooks has been offering free rides in Las Vegas and San Francisco. Those vehicles don't have some of the features you might associate with a car, like a steering wheel or a brake pedal. Instead, they kind of look like a toaster on wheels.

Now, the National Highway Traffic Safety Administration is allowing Zooks to deploy up to 2,500 AVs each year for the next two years, though the agency says its approval is still temporary. And Taco Bell's business has been hurt after an outbreak of the parasite cyclospora was linked to lettuce served at its restaurants. The chain said it removed the questionable lettuce within 72 hours of being notified by public health officials. But the incident still hurt the company's sales. Its parent company Yum Brands said that Taco Bell's same story, sales were down 2% from mid-June through July 27th. Here's Yom's CEO Chris Turner during the company's earnings call today.

As you would expect, the brand has seen a meaningful near-term sales impact, which Roy will discuss in more detail. We expect the sales impact to be temporary and are encouraged by a few factors. Elevated uncertainty initially weighed on consumer demand, and since then, consumers have become increasingly aware that this is an industry-wide. issue, not an issue specific to Taco Bell. The company says sales hit their worst point on the weekend of July 18th, and they've come back since then.

And it has a bigger plan to bring customers back involving $1 Mexican pizzas and limited time offers like butter chicken tacos. Yum shares closed up more than 3%. And that's what's news for this Thursday afternoon. Today's show is produced by Anthony Bansy and Danny Lewis with supervising producer Tali Arbell. I'm Alex O'SAlev for the Wall Street Journal. We'll be back with a new show tomorrow morning.

Thanks for listening.